Russia Lowers 2025 GDP Growth Forecast Below 2% Amid Budget Cuts

Russia's economic growth forecast for 2025 has been significantly downgraded from an initial 2.5% to figures ranging between 1.2% and 1.5%, reflecting a slowdown in its wartime economy that previously showed growth driven mainly by military spending. The non-military sectors continue to struggle, with private sector contraction persisting, though at a softer pace, and some improvement shown by increased employment and moderated inflation pressures. The federal budget deficit is widening, with recent figures indicating a deficit much higher than originally forecasted, driven largely by a sharp decline in oil and gas revenues exacerbated by Ukrainian drone strikes targeting refining and pipeline infrastructure. High interest rates, with the central bank's key rate only partially reduced from a peak of 21% to 18%, are constraining economic activity, prompting calls from banking officials for further cuts to stimulate growth. Despite the challenges, business confidence remains historically strong, supported by optimism among manufacturers. However, infrastructure damages and halted oil supplies via pipelines to Europe add to the economic strain facing Russia this year.