Putin’s Economic Engine Falters as Russian Growth Slows to a Halt

After defying global expectations for three years, Russia’s once-resilient economy is now showing unmistakable signs of strain, as data points to a dramatic slowdown,  The Gaze reports, citing Economist.

According to a high-frequency GDP tracker, Russia’s annualized growth rate has collapsed from around 5% at the end of 2024 to near zero. Similar trends have been observed by Russia’s own development bank, VEB, and in business turnover data from Sberbank, the country’s largest lender.

Even Russia’s central bank has acknowledged the slump, noting in early April that a range of sectors have recorded weaker output due to “plummeting demand.” The sudden economic deceleration follows years of unexpected expansion, fueled by wartime spending, strong oil prices, and redirected trade flows to the East.

Analysts point to three key reasons behind the downturn:

Structural Transformation Has Reached Its Limit

Russia’s pivot from a semi-open Western-facing market economy to a militarized, autarkic one was costly but initially growth-inducing. The central bank notes that this phase of heavy investment—in arms production, domestic industry, and trade infrastructure with China and India—is largely complete. Military spending, which surged by 53% in 2024, is projected to rise just 3.4% this year. That translates into less fuel for growth.

Aggressive Monetary Policy to Curb Inflation

Runaway inflation—fueled by war spending and labor shortages due to conscription and emigration—has pushed the central bank to maintain its benchmark interest rate at a staggering 21%. While this may be helping to stabilize the ruble and cool inflation expectations, it has also suppressed consumer spending and business investment.

External Headwinds and Falling Oil Prices

Global economic conditions have turned sharply against Russia. The U.S.-led trade war has dampened global growth and pushed oil prices down—bad news for an economy still deeply reliant on energy exports. The IMF has cut China’s 2025 growth forecast to just 4%, threatening a key market for Russian oil. Russia’s MOEX stock index has dropped 10% from recent highs, and March revenues from oil and gas taxes plunged 17% year-on-year. The finance ministry now projects a 1.7% budget deficit, triple its previous estimate, after slashing its forecast for energy revenues by 24%.

Despite talk of economic resilience, it’s becoming clear that Putin’s economic machine is sputtering—and faster than the Kremlin anticipated. 

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