Russian Economy Faces Prolonged Stagnation in 2025 Amid Restrictive Policies and Declining Oil Revenues

International Bodies Downgrade Russia's 2025 Economic Outlook

Recent reports from leading international financial institutions paint a picture of impending economic stagnation for the Russian Federation in 2025. Both the World Bank and the International Monetary Fund (IMF) have significantly downgraded their Gross Domestic Product (GDP) growth forecasts for the country, citing a confluence of factors including restrictive monetary policy, reduced oil revenues, and a disproportionate reliance on arms production.

The World Bank now projects Russia's GDP to grow by just 0.9% in 2025, a notable reduction from its June forecast of 1.4%. This outlook suggests a prolonged period of subdued expansion, with growth anticipated to remain below 1% annually through 2028. Similarly, the IMF has lowered its 2025 growth forecast for Russia to 0.6%, a decrease from its July estimate of 0.9% and April's 1.5%. This marks the second-steepest downgrade among major economies. Other analyses, such as that from the Vienna Institute for International Economic Studies, forecast 1.2% GDP growth for 2025, while some economists suggest a potential contraction of 0.5-1.2%.

Restrictive Monetary Policy Stifles Civilian Sectors

A primary contributor to the anticipated economic slowdown is the Russian Central Bank's (CBR) restrictive monetary policy, characterized by persistently high interest rates. The CBR's key interest rate currently stands at 17%, having been as high as 21% between October 2024 and June 2025. This aggressive stance is aimed at combating inflation, which the IMF expects to reach 9% in 2025.

However, these high borrowing costs are exerting significant pressure on the economy, particularly on civilian sectors and investment. The World Bank noted that tight monetary policies, shrinking private credit, and labor shortages have stalled civilian production. Vasily Astrov, a Russia expert at the Vienna Institute for International Economic Studies, identified the CBR's overly restrictive monetary policy as the main reason for the slump in growth. Business leaders, including Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, have voiced concerns that such policies are dampening economic activity and investment, suggesting a rate between 12% and 14% is necessary to reignite growth.

Declining Oil Revenues and War-Driven Economic Structure

Another significant factor contributing to the economic challenges is the decline in Russia's oil and gas revenues. The Ministry of Economic Development projects these revenues to reach $206.1 billion in 2025, representing a 12.5% decline from the previous year. Data for the first nine months of 2025 shows a approximately 20% year-on-year fall in petroleum export revenues, impacting the federal budget which historically relies on energy exports for a substantial portion of its income.

Concurrently, the Russian economy has become increasingly distorted by wartime spending. While 2024 saw robust GDP growth fueled by elevated military expenditures, industrial production growth in 2025 is almost entirely attributed to arms manufacturing. Defense-linked industries are expanding rapidly, yet non-military sectors are experiencing contraction. Output in non-military industries has reportedly fallen by 5.4%, with approximately a third of Russia's real-sector companies facing severe financial stress. Military spending is set to increase significantly in 2025, with the defense budget rising by one quarter to 13.5 trillion rubles (approximately 130 billion euros), potentially reaching 7-8% of GDP.

Outlook for Prolonged Subdued Growth

The combination of these factors suggests a challenging economic period for Russia. The IMF indicates that the 'pain' of tightening policies will primarily be felt by the civilian economy, rather than the military sector. Beyond monetary policy and oil revenues, other contributing factors to the subdued outlook include a persistent labor shortage, weak private demand, and the ongoing impact of international sanctions. The World Bank warns that the economy is heading towards 'stagnation rather than a 'managed slowdown',' with output unlikely to rise more than 1% per year through 2028.