Key Points and Summary – Russia’s economy is showing serious signs of strain, with tepid GDP growth of just 1.1% in the first seven months of 2025, casting doubt on official forecasts.
-The central bank is maintaining a near record-high 18% interest rate to combat inflation, a move that is taking a “significant toll” on investment and strangling non-defense industries.
-With some experts predicting growth could turn negative by the end of the year, this economic weakness comes as President Trump threatens an “economic war” to pressure Moscow into ending the conflict in Ukraine.
The Ukraine War Hurts Russia’s Economy
Russia’s Economic Ministry has published data indicating that the country has shown very tepid growth through the first seven months of 2025.
Per Bloomberg News, Russia’s GDP grew just 1.1 percent in the year’s first seven months, and is therefore “struggling to meet even the most cautious central bank estimate for growth this year, casting doubt on continued assurances from Governor Elvira Nabiullina that the economy isn’t cooling excessively under high interest rates.”
The central bank had earlier forecast 1%-2% growth for the year.
Dmitry Polevoy, investment director at Moscow-based Astra Asset Management, told Bloomberg News that “the central bank’s expectations implicitly assume acceleration in the second half of the year, which is hard to reconcile with the growing effects of tight monetary policy, said. He foresees full-year GDP growth of around 0.7% if the current pace continues.”
Interest Rates Remain High
If you thought the United States had high interest rates, Russia currently has a record high benchmark interest rate of 21 percent. However, that rate did drop recently to 18 percent.
“The Bank of Russia estimates that the achieved tightness of monetary conditions creates the necessary prerequisites for returning inflation to the target in 2026,” the bank said in a statement in March, per Reuters. “If disinflation dynamics do not ensure achieving the inflation target, the Bank of Russia will consider raising the key rate.”
“High interest rates and falling corporate profits are taking a significant toll on investment activity,” Elena Astafyeva, commercial director at the TenderPro procurement platform in Moscow, told Bloomberg News.
Some experts even see growth growing negative by the end of the year.
“Given the inertia in business activity indicators and a high base effect, economic growth could well turn negative by the end of the year,” Oleg Kouzmin, an economist at Renaissance Capital, told Bloomberg News. “The most likely outcome for full-year gross domestic product is below 1%.”
Recession Indicators?
The Moscow Times, earlier this week, asked the question of whether Russia’s economy is headed towards recession.
“Russia’s slowdown is driven by efforts to rein in inflation, which had risen after the government opened its coffers to finance the war and to cushion the impact of sanctions,” the Moscow Times story said. “That spending boosted demand, but supply lagged due to labor shortages and higher logistics costs caused by sanctions, causing prices to rise.”
The Moscow Times also noted that certain industries, particularly those unrelated to defense, are struggling.
“Among the declining industries were food production (-0.7% year-on-year in H1 2025), electrical equipment manufacturing (-1.5%), light industry (-3.2%), wood processing (-3.2%) and motor vehicles, trailers and semi-trailers (-16.6%),” the report said. “Mining output — including oil, gas and coal production — fell by more than 2.4% year-on-year in the first half of 2025.”
“Economic War”
In his cabinet meeting this week, President Donald Trump threatened Russia with “economic war” should it not bring the real war in Ukraine to an end.
“It will not be a world war, but it’ll be an economic war, and an economic war is going to be bad,” Trump said in the meeting. “It’s going to be bad for Russia, and I don’t want that.”
“It’s very serious what I have in mind, if I have to do it,” Trump added.
The president had promised on the campaign trail last year to bring about an end to the war between Russia and Ukraine on his first day in office. But carrying that out has proven more difficult, with Trump’s peace envoy Steve Witkoff now looking more towards bringing the war to an end by the end of the year.
“What we’re trying to do is put Putin and Zelensky together and create the opportunity to have a successful meeting,” Witkoff said this week, per Politico.
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
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Krystal cane
August 30, 2025 at 5:37 pm
And with Trump in charge the US economy is not going to be doing much better