In 2025, economic deceleration outpaced the reduction in inflation.
Evaluating the economic performance of the past year requires a straightforward comparison: what was planned versus what was ultimately achieved. While the final official figures for Russia`s economy in 2025 are still pending and will be released next month, preliminary data provides a clear picture.
How should we assess these results? The economy is multifaceted, described by hundreds, if not thousands, of indicators. It is possible to find metrics showing contradictory trends. However, there are core macroeconomic indicators, specifically Gross Domestic Product (GDP) dynamics and the inflation rate (price growth), whose status is enshrined even in the Budget Code as the «initial macroeconomic indicators» used for drafting the federal budget. These are the key metrics upon which the year`s economic performance must be judged.
Initial Plans vs. Reality
The original economic forecast, based on which the federal budget for 2025 was structured, was optimistic: the country’s GDP was expected to grow by 2.5%, and the inflation rate was projected to be 4.5%. It is essential to focus on these initial targets, rather than the subsequent revisions made during the spring and autumn, to accurately assess performance.
The Russian economy concluded 2025 with an estimated GDP growth rate of approximately 1%. This result is, therefore, at least 2.5 times lower than the original expectation. Compared to 2024, when GDP grew by 4.3% according to Rosstat, the pace of economic expansion in 2025 slowed more than fourfold. While the economy managed to remain in positive territory, the growth performance was clearly disappointing.
Deceleration and Inflation
This subdued growth rate is often gently described today as a «transition to balanced growth,» «planned deceleration,» or «conscious cooling.» However, it is necessary to call things by their proper names. If this is a distinct slowing or braking of the economy, it should be labeled as such. A realistic assessment forces us to identify the reasons behind this deceleration and determine what steps are essential to prevent it from transitioning into an outright contraction.
Regarding inflation, the second critical indicator, the year-end rate is anticipated to be just under 6%. This is a positive outcome, especially considering that only a few months prior, annual inflation hovered around 9–10%. Yet, when compared to the initial forecast of 4.5%, the final inflation result can only be considered satisfactory, at best. The overall conclusion derived from analyzing the primary macroeconomic indicators is that the economic outcomes did not fully justify the original expectations.
The Limited Impact of the Key Rate
In analyzing the GDP dynamics for the year, it is impossible to ignore the prevailing explanation for the economic slowdown: criticism directed at the Central Bank of Russia concerning its high key interest rate. Russia entered 2025 with the key rate at 21% and concluded the year at 16%. Both levels are high. Theoretically, the 5 percentage point reduction over the past six months should have positively impacted and slowed the decline in economic growth rates. This did not occur. In fact, as the rate was consistently lowered, the economy continued to decelerate. The expected effect of the rate cut was either minimal or entirely absent.
This inconvenient fact suggests that not all aspects of the Russian economy are dictated by the Central Bank`s key rate. Sometimes, it appears as though this single indicator is paramount above all else. If such a critical dependence truly existed, managing a modern economy would be simple: raise the rate to brake growth, lower it to stimulate expansion. However, the significance of the key rate should not be overstated, particularly within the Russian economy, which is still institutionally developing and stabilizing.
The health of the economy depends on a host of other crucial factors. For instance, the tax burden holds significant importance, and it is currently increasing. Equally critical are factors relating to administrative pressure on businesses, including inspections, permits, control measures, and so forth. Therefore, the economy is sustained by much more than just the Central Bank’s key rate.
Outlook for 2026
These systemic peculiarities must be accounted for if we hope for initial forecasts to align with final results. The official baseline forecast for 2026, which underpins the next federal budget, is rather modest: 1.3% GDP growth and 4% inflation. However, achieving even these cautious targets, especially regarding GDP growth, will be difficult amid rising tax burdens, declining capital investment, reduced consumer activity, and persistent high economic uncertainty.
The outgoing year 2025 was neither the best nor the worst for the Russian economy. We will know in a year whether it proved better than 2026. For now, we remain hopeful that the upcoming year will bring better results.
