By Guy Faulconbridge and Darya Korsunskaya
MOSCOW (Reuters) -Russia sees economic growth in 2025 slowing to 1.5%, far below the earlier 2.5% forecast, as high interest rates imposed to reduce inflation have stifled borrowing, Finance Minister Anton Siluanov told President Vladimir Putin on Wednesday.
Russia’s war economy grew robustly at 4.1% in 2023 and 4.3% in 2024, far faster than G7 countries, despite multiple rounds of Western sanctions imposed after its invasion of Ukraine in 2022, but it is slowing sharply this year.
Economy Minister Maxim Reshetnikov warned in June that Russia was on the brink of slipping into recession unless monetary policy changed.
Russia’s highest military spending since the Cold War has stoked inflation, which prompted the central bank to raise its key interest rate to 21% in October, the highest level since the early years of President Vladimir Putin’s rule in 2003.
The central bank cut to 20% in June and then to 18% in July, but the economy is still shackled by the cost of credit and labour shortages, according to analysts.
Siluanov told Putin that the Economy Ministry now saw growth of at least 1.5% this year. The official forecast for 2025 was 2.5%.
“If this year we see rather tough conditions for the implementation of monetary and credit policy, we see that the rate of economic growth will nevertheless be no less than 1.5 percent this year, at least according to the assessment of the Economy Ministry,” Siluanov said.
“A balanced budget will give more opportunities to the central bank to soften monetary and credit policy, which means that credit resources will be more accessible.”
Reuters in January reported exclusively that Putin had grown increasingly concerned about distortions in Russia’s wartime economy, particularly with a cut to investment by major companies due to high interest rates.
GROWTH OR STAGNATION?
During Putin’s first two terms as president from 2000 to 2008, the size of Russia’s economy soared to $1.7 trillion from less than $200 billion in 1999. But Russia’s nominal GDP is now just $2.2 trillion, about the same level it was in 2013, the year before Russia annexed Crimea from Ukraine.
“There are a lot of nuances in terms of ensuring economic growth,” Putin told Siluanov and other key government ministers. He said there was a constant debate between the government, central bank and experts about the key interest rate and the situation in the economy.
First Deputy Prime Minister Denis Manturov told Putin that manufacturing industry would grow about 3% – below an earlier forecast of 4.3% – and that industrial production would be about 2% – below an earlier forecast of 2.6%.
Russian GDP grew by 1.1% in the second quarter of 2025 compared with 4.0% growth in the same period last year, federal statistics service Rosstat said earlier this month.
According to the International Monetary Fund, Russia’s economy is now expected to expand by 0.9% this year, compared with its previous view of 1.5% growth.
With the economy slowing but Russia still spending vast sums on the war in Ukraine, Moscow will probably have to raise taxes and cut spending.
(Reporting by Reuters; writing by Guy Faulconbridge; editing by Mark Heinrich)
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