MOSCOW (Realist English). Russia’s economy in 2025 reflects a dual reality: headline resilience alongside deepening structural strain. Following the shock of Western sanctions imposed after the 2022 invasion of Ukraine, the country posted stronger-than-expected growth in 2023 and 2024, with GDP expanding by 4.1% in both years. However, that performance was driven less by market dynamism than by large-scale state spending, particularly in the defense sector.
The expansion coincided with a domestic liquidity surge. Russian households and investors repatriated capital previously held abroad, boosting deposits in domestic banks. Combined with rapid credit growth and a sharp expansion in the money supply, this inflow supported consumption and short-term investment. By early 2025, broad money (M2) had nearly doubled compared with late 2021 levels.
Yet the growth model was heavily concentrated. Defense procurement, military wages and state transfers injected income into specific regions and sectors, while small and medium-sized businesses struggled with sanctions, supply-chain disruptions and rising borrowing costs. Inflation accelerated to nearly 10% in 2024, prompting the Central Bank to raise its benchmark interest rate to 21%. Although rates eased in 2025, they remained elevated, limiting private investment and credit expansion.
By 2025, the wartime stimulus began to fade. GDP growth slowed markedly through the year, with official projections revised downward. President Vladimir Putin said in early 2026 that full-year 2025 growth amounted to around 1%, signaling a clear deceleration from the previous two years.
Externally, Russia continued its trade pivot toward Asia. China became its largest trading partner, accounting for roughly one-third of exports and imports, while trade with the European Union fell sharply from prewar levels. However, Asian buyers typically purchase Russian energy and commodities at discounted prices, reducing export revenues despite steady volumes. The current-account surplus narrowed significantly compared with 2024.
Fiscal pressures have intensified as well. Defense and security spending now account for a substantial share of federal expenditures, with defense allocations reaching approximately 6% of GDP. To offset weaker energy revenues, the government has increased corporate taxes, raised value-added tax and drawn on sovereign reserves. While Russia’s public debt remains relatively low, continued reliance on commodity income and elevated military spending constrains long-term fiscal flexibility.
Analysts increasingly describe the outlook as one of “managed stagnation.” While a sharp collapse appears unlikely absent a severe external shock, growth is expected to remain subdued in the 1–2% range in coming years. Demographic pressures, labor shortages and declining productivity in non-military sectors further limit expansion potential.
Russia’s economy has demonstrated resilience under sanctions and geopolitical isolation. But as the temporary drivers of the wartime rebound recede, sustaining growth without structural reform or a shift in spending priorities will remain a significant challenge.