Russian leader Vladimir Putin has admitted that economic growth slowed to 1% in 2025 — well below the 1.5% forecast. Even as he has held on to his maximalist demands in negotiations, the prolonged war in Ukraine has strained the economy.
Russian leader Vladimir Putin on Tuesday admitted that economic growth slowed to 1 per cent in 2025 — much lower than the official forecast of 1.5 per cent.
The admission is the latest sign that even as Putin has
stuck to his maximalist demands in negotiations, the continuing Russian war on Ukraine —now nearing its fourth-year mark— has strained the economy and the war-driven growth spurt has ended.
Growth in 2025 is in sharp contrast to 2023 and 2024 when the economy grew by 3.6 per cent and 4.3 per cent respectively on the back of war-related spending and a manufacturing boom to support the war effort. But the boom and stimulus have now dried up.
Putin projects confidence as numbers show a grim picture
In an apparent bid to project confidence, Putin said the economic slowdown in 2025 was not only expected but deliberate as “it was connected with targeted measures to reduce inflation”, according to AFP.
Putin hailed the reduction of inflation to 5.6 per cent in 2025 against 9.5 per cent the previous year.
What Putin did not mention was that the reduction still fell well short of his target of bringing inflation below 4 per cent.
Moreover, the true extent of the slowdown may be much larger as the International Monetary Fund (IMF) assessed that Russia grew by only 0.6 per cent in 2025.
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In any case, the slowing growth is bound to be a major setback for Russian planners as even their revised estimates for 2025 fell flat. They initially projected 2.5 per cent growth and later revised it downward to 1.5 per cent. In the end, they did not achieve even that.
Putin told his officials that the task before them was clear: to restore economic growth.
“We need to restore the growth rate of the domestic economy, improve the business climate, and increase investment activity with a focus on increasing labour productivity,” said Putin.
But that is easier said than done as Russian revenues from oil and gas are falling and its sanctions-hit economy is increasingly reliant on China for exports as well as imports of everything from everyday consumer goods to inputs for arms production and heavy machinery for the war effort.
Moreover, Russian allies other than China, such as Iran and Venezuela, remain battered from conflicts with the United States so economic cooperation with like‑minded countries is also limited.
Why the Russian economy fell last year
The growth spurt driven by unprecedented military spending and military manufacturing dried up in 2025.
While the economy had shifted to a war footing in 2022 and 2023, state spending was what sustained growth in 2024. By 2025, both of those avenues had been exhausted. Moreover, inflation resulting from this bumper spending reached double digits in 2025.
The situation became so concerning that Economy Minister Maxim Reshetnikov warned in June that Russia was on the brink of recession unless monetary policy changed. But as inflation was already in double digits and the interest rate already at 21 per cent, there was little scope to further stimulate demand.
As a result, despite Reshetnikov’s warning, the Russian central bank cut the rate to 20 per cent initially and then to 18 per cent in a bid to ease credit and address the labour shortage.
As a result, the Russian economy now appears to be in stagflation, a condition where inflationary and recessionary pressures coexist and traditional tools can no longer address the situation. But such conditions do not have prompted Russia to seek an early end to the war.
The Kremlin said on Wednesday that
the war would continue until Ukraine’s acceptance of Russian terms.
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