Looking Forward To The Year 2026

• Igor Lipsits
• 31.12.2025, 16:17

What awaits the Russian economy.

Here I see two possible developments:

pessimistic (inertial, hereinafter we will designate it "P") - the war continues in the same "style" that we have seen throughout 2025: protracted position battles with heavy casualties, small changes in the front line and increasing intensity of drone confrontation;

optimistic ("O") - a truce (but not a peace treaty) is reached on the Ukrainian front, active fighting stops, the sides continue to "bite" each other stealthily with the help of drones and sabotage groups.

The first option is fraught for Russia with the preservation of the same financial burden with which it has been living for 4 years.

The second option gives Russians hope for a not particularly significant, but still a reduction in military expenditures of the federal budget and regional additional payments to contractors. It is also possible that some foreign sanctions against Russia will be lifted (eased), but not the main ones, because the energy markets of Europe and Turkey will not be able to return in full: they have been seized by US companies with pleasure.

In the best option for Russia, it will be possible to partially restore oil and gas supplies from Russia to Europe through the same US firms, selling them at once and in their entirety to US intermediaries (then Europe will buy formally American oil and gas), and thus giving them a significant share of the profit from sales.

Based on this option, the Russian government will be able to restore oil and gas supplies from Russia to Europe. Therefore:

in option "O" the GDP decline will probably fall within the range from zero to minus 4% (stagnation - weak recession);

in option "P" the decline may exceed 5% (pure recession).

The assessment of such a decline cannot be made on the basis of IMF data, since the IMF is forced to use materials from Rosstat, including dubious estimates of the deflator. Therefore, it is better to assess the dynamics of the Russian economy as a whole on the basis of the data on changes in the natural volumes of production of the most important types of products (methodology of the Central Institute for Economic Forecasting of the Russian Academy of Sciences and approaches of the Institute of National Economy Forecasting) and railway transportation. This does not fully take into account developments in the service sector, but for Russia - returning from the post-industrial world to the backward-industrial world - I believe this assumption is acceptable.

With such forecasts of GDP dynamics, the Russian government will not be particularly happy about the collection of revenues in the federal budget in 2026, and thus the size of the budget deficit.

Budget Status

Reminder that for 2025 it was planned to collect revenues in the budget in the amount of 40.3 trillion rubles, but according to estimates for October 2025, revenues were collected only in the amount of 36.5 trillion; the deficit is expected to be 4.75 times higher than planned for 2025, that is, at least 5.7 trillion rubles - against 1.2 trillion rubles under the plan.

In 2026, we can expect a further decline in budget revenues, oil and gas revenues - due to the negative dynamics of global oil prices for Russia, and non-oil and gas revenues - for two reasons:

reduction of budget financing of non-military industries (apparently, especially significant in the first quarter of 2026);

reduction of profits and even the scale of operations of civilian companies in Russia after the VAT increase and reduction of benefits for small and medium-sized businesses.

Based on this, we can expect that in 2026 the federal budget deficit will be higher than the planned value of 3.8 trillion rubles and will amount to:

in option "O" 4-6 trillion;

in option "P" 5-7 trillion rubles.

In 2026, operational adjustments of budget parameters are possible, including sequestration of civil expenditures, as it has already happened in 2025.

But the Russian government will have its hands tied in terms of tax reforms, as such reforms have been underway for the last two years. Therefore, we should not expect significant tax innovations, but it is likely that excise rates will be raised again (except for the excise tax on liquid steel, since the ferrous metallurgy is already in trouble).

A significant increase in the tax burden is possible at the level of regional budgets (which are already struggling to make ends meet) - through the real estate tax. Here we can expect a strong increase in the cadastral value of housing, from which such a tax is calculated, as well as the rate itself - up to its currently approved upper limit of 2.5% (for an apartment worth, say, 10 million rubles, it will give 250 thousand rubles a year of tax).

The reduction of expenditures of the deficit federal budget combined with the reduction of the balanced financial result of Russian companies (in 2025, according to Rosstat data for January-September, the balanced financial result of companies decreased by 7.7% compared to the same period of 2024) will probably have an increasing impact on the growth of nominal incomes of the country's citizens.

It is unlikely that even in option "O" these incomes will grow by more than 8-9%. But it is quite likely that with real consumer inflation, which in 2026 may accelerate due to an increase in the VAT rate, growth in the cost of imported goods (in case of ruble devaluation), as well as accelerated growth in the cost of motor fuel and transportation tariffs, real incomes of the population will fall. Another thing is whether we will be able to objectively assess this according to the statistical data of Rosstat?

Inflation and other indicators

These data will most likely indicate stabilization of inflation at the level of 6-7%, but real inflation may reach 13-14% (let's see what data the Association of Russian Banks will give us).

Let's hope that the reporting data of Russian retailers will help to see the real picture.

The only thing that can change at least a little bit this picture is the slowdown of inflation in the consumer market due to a significant drop in nominal incomes of citizens. People will simply buy less and less goods and especially services, and the monetary pressure on prices will weaken.

But we should not be happy about this result, because in fact it will only mean a reduction in physical consumption of the Russian population: as we know, Russian retailers already in 2025 record a decline in sales of food products in physical terms.

Trying to estimate what in such a situation by the end of 2026 some quantitative indicators of the state of affairs in the country's economy may be, we can assume that:

Ban key rate. But by the end of 2026, this process is likely to slow down due to a significant increase in the number of interethnic conflicts between Russian citizens and new labor migrants.

Sectoral Prospects

In the oil industry, the crisis will worsen, which will lead not so much to a decline in production in physical terms, but to a deterioration in the financial results of companies. And since the government cannot allow bankruptcy of companies in this industry and a significant drop in oil and gas production (the basis of the country's energy supply), it will provide oil and gas companies with more and more tax benefits. Which, accordingly, will increasingly reduce the revenues of the federal budget of the Russian Federation.

Almost all sectors of the economy will be in the crisis zone:

Production in physical terms in ferrous metallurgy will fall, although to a lesser extent than in 2025: the decline in pig iron production in January-October 2025 amounted to 5.6%, alloy steel - almost 15%, rolled products - 5.3%, pipes, profiles and fittings - 11.9%");

The number of newly started construction projects will continue to decline, and here the rate of decline may become higher than in 2025. The crisis in the construction materials industry looks like a harbinger. The drop in output in the industry has lasted 11 months, with a cumulative decline of minus 16%. Output is just above the 2020 lows. This indicates a depression in the construction complex";

retail trade turnover is likely to fall, especially if the ruble devaluation starts in early 2026, which will cause an increase in prices for imported goods. An increase in the price of airline tickets is also likely; experts expect flight prices to rise within 20% in 2026.

Record production decline is possible in the machine-building industry. And if at first it captured mainly the automotive industry (the decline in 2025 - 61.6% against 2024) and agricultural machine building, in 2025 the same situation is possible in other branches of machine building.

The reason will be a significant reduction in investment in the economy with the still high cost of loans, in the absence of foreign investors and in the reduction of net profit of companies due to the growth of tax exemptions.

The situation in the agricultural sector of the country is also alarming for Russians. (The crisis in agriculture is worsening, the industry has never been so hard in the history of modern Russia, said Alexander Rodin, president of the Don Association of Peasant Farms and Agricultural Cooperatives.)

The turnover growth, and a significant one, is possible already traditionally in the funeral business and in paid medicine.

The banking sector of Russia will be under special care of the state and open situations of bankruptcy of banks will be avoided here. But there may be an increase in the number of cases of overt and covert rehabilitation of troubled banks through DIA or directly by the Bank of Russia. The situation here may significantly worsen with a strong devaluation of the ruble in 2026, which will revive the propensity of Russians to keep their savings in foreign currency and cause an outflow of funds from deposits. In such a scenario, the Bank of Russia may introduce quantitative limits on withdrawal of funds from bank ruble accounts on a monthly basis.

Foreign Trade

Russian exports are likely to deteriorate and the rate of this decline will be determined mainly by the dynamics of world oil prices, since Russia can no longer offer the world any new goods for large-scale exports.

If the sanctions against Russia are not lifted in the slightest (option "P"), the drop in exports in 2026 may be greater than in 2025 (minus 2.7% for 10 months against the same period in 2024).

If the sanctions are at least partially lifted (option "O"), the drop in exports in 2026 will be comparable to the figures of 2025.

As for imports, if the current ruble exchange rate is maintained, they will grow approximately as in 2025 (plus 2-3%). But in case of a significant devaluation of the ruble (if the dollar will cost 90-95 rubles, i.e. 15-20% less than at the end of 2024), imports will stagnate or even slightly decrease in physical terms.

In view of all this, the current account surplus in 2026 will decrease again, although possibly by 15-20%. will shrink again, although perhaps to a lesser extent than in 2025, when it fell by 29.6% year-on-year.

Igor Lipsits, The Moscow Times