Russia facing recession: Economists warn of dramatic consequences!

Russia facing recession: Economists warn of dramatic consequences!

Russia's economy is facing significant hypothermia. Economists expect a recession in 2025. In recent years, Russian authorities have sought to present positive economic figures to boost the morale of the population and question the effectiveness of international sanctions. But current developments show a different picture: a potato crisis, high losses on the stock markets and falling oil prices are increasingly putting strain on the economic climate. Economy Minister Maxim Reshetnikov recently warned that the looming recession is closely linked to the war in Ukraine and that it is time to act accordingly. Janis Kluge, economist, says that the economic situation in Russia has noticeably worsened for the first time in three years.

In the first quarter of 2025, gross domestic product (GDP) grew by just 1.4%, a dramatic decline compared to 5.4% in the same period last year. While the Russian Ministry of Economy forecasts growth of 2.5% for 2025, the central bank expects a more modest 1.0 to 2.0%. High key interest rates above 20% make it difficult for companies to obtain loans, which leads to high interest payments and inhibits investment activity.

Growing economic problems

The Kremlin government has introduced state-sponsored loans to support the war economy. However, these policies are leading to a buildup of toxic debt, leading analysts to warn of a wave of bankruptcies in Russia. Furthermore, central bank chief Elvira Nabiullina is under pressure; Business leaders and government officials are criticizing their monetary policies as an investigation into their decisions continues.

Oil and gas revenues are central to the state budget, but they fell 12% in April 2025 compared to the previous year. The price of oil fell from USD 70 to USD 50 per barrel at times. These developments are alarming, especially as the EU plans new sanctions against Russia. But the capacity to implement these measures is limited, especially without US support.

Increasing military spending and its effects

As economic problems grow, Russia's military spending increases significantly. The defense budget for 2025 is about 13.5 trillion rubles (about 130 billion euros), which corresponds to around 7-8% of GDP, a record in post-Soviet history. Before the full invasion of Ukraine, this value was 3.6%. High government demand has sparked a war boom in parts of the Russian economy over the past two years.

Despite an increase in income, Russia remains faced with challenges such as labor shortages and high inflation. Inflation was 9.7% in October 2024, partly caused by Western sanctions. The central bank is struggling with high interest rates, which have been raised in the wake of increased inflation from 7.5% to 21%, the highest level in 25 years. These high interest rates can lead to business bankruptcies and financial problems for households.

The Russian defense industry has created around 520,000 new jobs since 2023, while 160,000 positions remain unfilled. Nevertheless, production is growing more slowly than necessary because a shortage of skilled workers and Western sanctions make it difficult to build new plants. Russia also imports weapons from Iran and North Korea because its own production is not sufficient. Recruitment of new soldiers is also declining; 540,000 soldiers were recruited in 2023, but only 190,000 in 2024 through July. The majority of recruitment is voluntary, but bonuses for recruits increase significantly.

In summary, Russia's economy faces significant challenges in 2025, compounded by the Ukraine war, internal financing problems and dramatically increased military spending. Both the political and economic conditions could serve to dampen popular optimism without, however, hindering the ongoing war effort. The coming months will be crucial in determining the direction of the Russian economy under these difficult conditions.

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