Russia's economy on the brink: companies report drastic declines!

Russia's economy on the brink: companies report drastic declines!

The Russian economy faces numerous challenges in 2025. While it remained largely stable in the first two years of the Ukraine conflict, current economic figures show alarming trends. Loud Mercury 34 percent of Russian companies report that their business situation has deteriorated in the last six months. For comparison: In May 2024 it was only 16 percent and in December 2022 it was 24 percent. This points to a worrying trend.

In addition, many companies have stopped or slowed down their investment projects. A quarter of companies have suspended non-essential projects, which could have a dramatic impact on future economic development. The mining, heavy industry, chemicals and transportation sectors are particularly affected, all of which are experiencing significant declines in sales.

Economic conditions and challenges

The current situation is exacerbated by the Russian Central Bank's high key interest rate, which 42 percent of respondents see as the biggest obstacle to economic stability. This value has increased by four percent compared to the previous year. Despite the existing difficulties, 66 percent of company representatives report that their economic situation has remained stable or even improved. In 2024 it was still 84 percent.

Another pressing problem is the shortage of skilled workers, which is cited as the biggest concern by 48 percent of company representatives. This poses a serious threat to the Russian economy's ability to innovate and grow. However, expectations regarding economic conditions by the end of the year are cautiously optimistic, with 90 percent of respondents believing they will stabilize or improve.

Critical developments since 2022

The effects of the war in Ukraine and the associated Western sanctions cannot be overlooked. The inflation rate is estimated at around 10.2 percent in 2025, while government reserves have fallen to less than 300 billion euros, a historic low. The Kremlin is trying to maintain control over the economy and has adopted a model reminiscent of a war economy. Vladimir Putin has initiated massive tax spending on defense, which has led to a GDP increase of 4.3 percent in recent years. Economic check states that the Russian economy has made little progress since then. In 2022, GDP contracted by 2.5 percent, followed by a further decline of 1.8 percent in 2023, before a modest growth of 0.3 percent in 2024.

Dependence on oil and natural gas remains critical, as 70 percent of government revenue comes from these areas. The sanctions restrict access to capital markets and technologies, resulting in a decline in industrial production. This is underlined by the dramatic change in the export structure, in particular the decline in natural gas exports to the EU by over 85 percent and a 60 percent collapse in exports of machinery and chemicals since 2021.

The long-term prospects of the Russian economy therefore look bleak. The structural weaknesses, the growing indebtedness of many companies and social burdens could endanger the sustainability of Russia's current economic policy. Companies' responses to geopolitical risks have also changed; Only 15 percent see this as a major problem, compared to 56 percent at the beginning of the conflict. This could indicate that some companies are adapting to the new reality.

Overall, it remains to be seen how the situation will develop in the coming years. The essential problems that are burdening the Russian economy today have deeper social and economic roots, the resolution of which will be dominated by geopolitical tensions for the foreseeable future.