The Russian economy has been on the verge of recession for several months, as financial authorities implement measures aimed at curbing growth to prevent runaway inflation.

In the first quarter of this year, Russia experienced its first quarterly contraction in GDP since 2022.

While official GDP data for the second quarter is still pending, analysts generally project that growth for this period will be around 0%, indicating that Russia narrowly escaped a technical recession—which is characterized by two consecutive quarters of GDP decline.

Economist Dmitry Polevoy estimates that Q2 growth is “close to zero after seasonal adjustments,” whereas Bloomberg reports that the Russian economy has seen a “slight quarter-on-quarter growth.”

Liam Peach from Capital Economics and Stanislav Murashov from Raiffeisenbank in Moscow have both forecasted a quarterly growth of 0.3% for Q2.

The slowdown in Russia’s economy is primarily the result of efforts to control inflation, which surged after the government increased spending to support the war and mitigate the effects of sanctions.

This increased expenditure raised demand, but supply has struggled to keep up due to labor shortages and elevated logistics costs linked to sanctions, contributing to rising prices.

The unpredictable high inflation complicates economic planning, prompting the Central Bank to raise interest rates to temper economic activity, which encourages saving and raises borrowing costs for businesses.

Following a year of stringent monetary policy, indications of economic cooling are becoming apparent.

One such indicator is industrial output, which measures the production volume across manufacturing, mining, and utilities sectors, encompassing a range of goods from cars and steel to electricity and clothing.

According to statistics from the Ministry of Economic Development, industrial growth slowed to 1.4% year-on-year in the first half of 2025, down from 3.9% in the latter half of 2024.

Industrial growth was bolstered by sectors related to the war, which have benefited from government contracts and subsidies.

These include transportation equipment manufacturing (+34.6% year-on-year in H1 2025), electronics and optical products (+15.1%), and fabricated metal production (+13.6%).

Conversely, many other sectors are facing challenges.

Declines were seen in food production (-0.7% year-on-year in H1 2025), manufacturing of electrical equipment (-1.5%), light industry (-3.2%), wood processing (-3.2%), and the automotive sector, including vehicles and trailers (-16.6%).

The output from the mining sector, encompassing oil, gas, and coal, dropped by more than 2.4% year-on-year in the first half of 2025.

Vladimir Salnikov, an economist from the Center for Macroeconomic Analysis and Short-Term Forecasting, stated that industrial output in non-military sectors has decreased by 0.9% from February to June compared to the previous year.

The consumption boom is also diminishing, as high borrowing costs persist and wage growth slows.

Retail trade—representing the total value of goods purchased by households—increased by 2.1% during the first half of this year compared to the same period in 2024, which is a slowdown from the 10% growth in the latter half of 2024 and the full-year growth of 7.7% last year.

According to SberIndex, the statistical division of Sberbank, the growth in Russian consumer spending decelerated to 9.5% year-on-year for the period of August 3-17, down from an average of 13.9% during January to July.

While these trends indicate a slowdown rather than a collapse, it’s evident that the post-war boost observed since 2022 is waning.

Many analysts anticipate that GDP growth will stagnate or even contract in 2025, marking Russia’s first annual decline since 2022.

“The economy may, and is likely to, contract in 2025,” economist Vladislav Inozemtsev told The Moscow Times.

He suggested that the economy might shrink by 0.5-1.2% given that “there have been no genuine growth drivers, not even early in the year.”

Moscow-based economist Dmitry Polevoy from Astra Asset Management expects a modest GDP growth of 0.6% in 2025—still a positive figure but below projections from the Central Bank (1-2%) and the Finance Ministry (1.5-2%).

Sofia Donets, chief economist at T-Investments brokerage in Moscow, indicated to Vedomosti that the slowdown is expected to deepen towards the end of 2025 and into early 2026, affecting multiple sectors throughout the economy.

The surplus funds that have thus far been utilized to stimulate the Russian economy are diminishing, according to Inozemtsev.

To maintain support for the defense sector in the future, he argues, authorities will need to either increase taxes or reallocate resources from the civilian economy, which will constrain growth.

“In conclusion, I foresee stagnation in the Russian economy, exhibiting both elements of decline and recovery—albeit all within a margin of statistical error,” Inozemtsev noted.

He drew parallels between the current economic conditions and the period of 2014-2020, during which the initial wave of Western sanctions challenged the Russian economy without triggering a major social or political crisis.