Russia’s economy is teetering on the edge of a recession, according to Economic Development Minister Maksim Reshetnikov. Despite showing remarkable resilience in the face of unprecedented Western sanctions, the country’s economic growth is slowing down. Reshetnikov made this warning during a panel discussion at the St. Petersburg International Economic Forum, citing current business sentiment and indicators as evidence that a recession is looming.
The Russian economy has been operating under intense pressure since the escalation of the Ukraine conflict in 2022. However, it has consistently outperformed forecasts, with GDP growth of 4.1% in 2023 and 4.3% in 2024. This has propelled Russia to become the world’s fourth-largest economy by purchasing power parity (PPP), which takes into account the differences in cost of living across countries.
Reshetnikov emphasized that the data available is essentially a “rearview mirror,” and that the current situation is more nuanced. He stated, “The figures show a cooling, but… we are, in my view, already on the brink of entering a recession.” However, the minister was quick to point out that a recession is not inevitable, and that policy decisions, particularly interest rate choices, will play a crucial role in determining the economy’s trajectory.
Finance Minister Anton Siluanov struck a more optimistic note, describing the economy as “cooling” but expressing confidence that growth will resume. He assured that “summer always follows winter,” suggesting that the current slowdown is a temporary phenomenon. Central Bank Head Elvira Nabiullina characterized the current phase as an “exit from overheating,” explaining that the demand-side economy had been expanding while the supply side lagged behind, leading to overheating and inflation.
In a bid to stimulate growth, the Bank of Russia recently cut its key interest rate by 100 basis points to 20%, citing a slowdown in inflation. This marks the first rate reduction since 2022, when the central bank adopted a tight monetary policy to stabilize the economy in the face of Western sanctions. The central bank projects that Russia’s economic growth will slow to 1-2% in 2025, down from 4.1% in 2024, while the government maintains a more optimistic outlook, expecting growth of 2.5% next year.
As the Russian economy navigates these challenging times, the decisions made by policymakers will be crucial in determining its future trajectory. With the country’s economic growth slowing down, the world will be watching closely to see how Russia responds to the challenges ahead. Will the government’s optimistic outlook be borne out, or will the central bank’s more cautious projections prove to be more accurate? Only time will tell, but one thing is clear: the coming months will be critical in shaping the future of Russia’s economy.
