In the stately halls of Vladivostok’s economic forum, President Vladimir Putin dismissed, with characteristic aplomb, suggestions that the Russian economy was slowing.
Yet beneath the veneer of confident pronouncements lies a reality of creeping contraction that cannot be wishfully banished by Kremlin rhetoric. Recent data makes a compelling case that Russia is not merely wrestling with stagnation, it is straining under its weight.
Take the central bank’s revealing graph. It signalled two consecutive quarters of negative GDP growth, a textbook definition of recession, though the second quarter’s figures remain unpublished. Q1 alone recorded a 0.6 % contraction. Add to that the downgraded forecast for 2025 growth: now projected at approximately 1.2 %, a sharp deceleration from 4.3 % in 2024.
The defiant posture of Sberbank boss German Gref only underlines the gravity of the situation. He declared the economy to be in “technical stagnation”, cautioning that even a planned cut in interest rates to 14 % may prove too timid. Only a more substantial reduction, towards 12 % or below, stands any chance of kindling a revival.
Meanwhile, PMI indicators tell their own story. Manufacturing activity has contracted for a third consecutive month, weighed down by weakening domestic and export demand. Though the index ticked up to 48.7 in August, it remains firmly in contraction territory below the 50-point expansion threshold. The services sector, too, may have stabilised at 50.0, but new orders still fell, and confidence remains near its lowest since mid-2023.
Behind the numbers, tangible cracks are spreading. Russia’s commercial aerospace sector, once a symbol of industrial ambition, now verges on farce: just one of fifteen planned commercial jets was delivered in 2025, hindered by sanction-induced shortages, technology bottlenecks, and systemic delays. The MC-21, once a beacon of domestic engineering, is now postponed until at least 2026, underpowered by locally sourced components.
Russia’s fiscal ledger offers no comfort. Sustained war-time defence spending, set at a gargantuan 17 trillion roubles, or 41 % of total expenditures, has ballooned the deficit. Projections envisage sustained austerity: tax hikes, deeper cuts in healthcare and education, and the continued squeeze on civilian investment.
What, then, accounts for Putin’s denials? It is the economic equivalent of a magician’s patter, designed to redirect attention: “I am in regular contact with Gref,” the president assured, betraying no hint of alarm. But such affinities cannot obscure the empirical decline and the widening chasm between military and civilian economies.
There is a certain dark irony, even cruelty, in the path chosen. The road of forced primacy of defence, financed by off-budget loans, punitive interest rates, and relentless borrowing, is choking the civilian engine of growth. According to independent analyses, by early 2025 even the military-industrial complex, once bulwark of wartime expansion, showed signs of faltering under resource constraints.
Moreover, the dam of external support is crumbling. Foreign direct investment has plummeted, a staggering 62.8 % drop in 2024, with foreign holdings nearly halved since the war began. The flagship economic forum, once a magnet for Western capital, now stands as a grim reminder of global retreat.
And let us not forget the invisible yet potent brain drain: a silent haemorrhage of talent. Fortunes of skilled professionals, tech specialists, entrepreneurs, have flowed outwards, eroding Russia’s human capital. A hallmark of long-term stagnation is this reduction in creative and productive capacity.
To argue that Russia’s economy is merely standing still would already understate the matter. The truth is more insidious: the economy is regressing. Manufacturing is contracting, services barely treading water, investment fleeing, talent slipping away, and the civilian sector suffocating under the weight of military prioritisation.
Putin’s selective narrative, framed by “Russian resilience” and “low public debt”, serves to mask the deeper malaise. But financial stability rooted in the suppression of growth is a hollow victory. Tax hikes and austerity may temper deficits, but at the cost of future vitality.
The conclusion is unavoidable: Russia is not merely managing a slowdown, it is gripped by stagnation, risking recession. The question now, for policy makers and observers alike, is whether the Kremlin will choose constraining orthodoxy, or finally dare to loosen the stranglehold, accept short-term discomfiture, and restore manoeuvrability to its beleaguered economy.
