Russian Economic Outlook Dims for 2025 Amid Softening Optimism and Slowing Growth Forecasts

Public Optimism Softens as Economic Strains Mount

A recent survey by Gallup indicates a notable decline in economic optimism among Russians for 2025, despite previous periods of resilience following the 2022 invasion of Ukraine. The proportion of Russians who believe their local economy is improving has dipped to 48%, down from a high of 56% in 2023. Concurrently, 39% now report that economic conditions are worsening, narrowing the optimism gap to just nine percentage points. This level of public pessimism has not been observed since the COVID-19 pandemic.

The survey highlights a complex picture: while 39% of Russians report living comfortably on their current incomes, an increase from 27% in 2021, a significant 31% struggled to afford food in the past year. This paradox is partly attributed to record-low unemployment and a 16-year high in wage growth, driven by labor shortages, military mobilization, and substantial state spending on defense. However, Gallup notes that this contrast between employment figures and food affordability underscores the uneven nature of Russia's economic resilience.

Major Institutions Downgrade Growth Projections for 2025

International and domestic financial bodies have revised their economic growth forecasts for the Russian Federation downwards, projecting a sharp slowdown in 2025. The International Monetary Fund (IMF) has notably cut its 2025 GDP growth forecast for Russia to just 0.6%, a significant reduction from its July estimate of 0.9% and an April projection of 1.5%. This places Russia's anticipated growth below the global average and even lower than that of the Eurozone.

Similarly, the Central Bank of Russia has lowered its 2025 GDP growth forecast to between 0.5% and 1.0%, down from an earlier range of 1.0% to 2.0%. The Economic Development Ministry also adjusted its 2025 forecast to 1.0%, a decrease from its April prediction of 2.5%. The World Bank echoes these concerns, forecasting 2025 GDP growth at 0.9% and suggesting a period of stagnation where annual growth may not exceed 1% until at least 2028.

Underlying Pressures Point to Mounting Economic Challenges

Several factors are contributing to the dimming economic outlook. Inflation remains stubbornly high, exceeding 8%, which is more than double the central bank's target. The IMF projected inflation to reach 9% for the current year. Perceived inflation by the Central Bank is around 16%, with household expenditures reportedly increasing by 19-21%.

Labor shortages, exacerbated by mass mobilization and emigration, are driving wage inflation but also limiting industrial capacity. Sberbank CEO German Gref has highlighted the need for millions of skilled migrants to sustain economic growth. The country's war economy, while initially robust, is showing signs of reaching its operational ceiling, with defense-related industries operating near full capacity. The prioritization of defense spending, which constitutes 40% of the 2025 budget, is crowding out investment in civilian sectors like education, healthcare, and infrastructure.

Furthermore, the ongoing impact of Western sanctions, coupled with lower global oil prices and tighter enforcement, continues to strain the economy and federal budget. High interest rates, with the Central Bank recently lowering its key rate to 16.5%, are constraining activity in the civilian sector. Analysts warn of an increasing likelihood of a stagflation scenario, characterized by persistent high inflation alongside slow economic growth.