Economy Ministry: Russian GDP grew 0.4% y/y in July

Economy Ministry: Russian GDP grew 0.4% y/y in July

MOSCOW, July 02, 2025—Russia's economy continues to face headwinds as the country's GDP grew by a mere 0.4% year-over-year in July, according to data released by the Economy Ministry. This marks a significant slowdown from the previous quarter's growth rate of 1.1% year-over-year and underscores the ongoing challenges posed by the war in Ukraine and the impact of Western sanctions.

The slowdown in GDP growth is attributed to various factors, including the high interest rates imposed by the Central Bank of Russia (CBR) to combat inflation, labor shortages, and the ongoing war effort. The CBR has been raising its key interest rate to curb inflation, which has reached 8.8% in July, down from a peak of 17.8% post-invasion in February 2022. However, these high interest rates have also made borrowing more expensive, stifling economic activity and slowing growth.

Economy Minister Maxim Reshetnikov warned in June that Russia was on the brink of slipping into recession unless monetary policy changed. The latest data suggests that the economy is indeed struggling, with growth expected to slow further over the coming quarters. The International Monetary Fund (IMF) now expects Russia's economy to expand by 0.9% this year, down from its previous view of 1.5% growth [2].

The slowdown in GDP growth is particularly concerning given the continued high levels of government expenditure on defense. Russia's defense spending has surged during the war, fueled by the sale of oil and gas to allies like China and India. However, declining oil export revenues due to sanctions and lower global demand have put pressure on the budget deficit, which reached 4.88 trillion rubles ($61.1 billion) between January and July this year, equating to 2.2% of GDP [1].

To mitigate the economic challenges, the Economy Ministry has revised its growth forecast for 2025 to 1.5%, down from the earlier 2.5% forecast. Finance Minister Anton Siluanov told President Vladimir Putin that the economy ministry now sees growth of at least 1.5% this year, attributing the slowdown to tough conditions for monetary and credit policy [2].

The continued slowdown in GDP growth and the ongoing war effort pose significant challenges for Russia's economy. The government may need to consider further spending cuts or tax increases to balance the budget and support economic growth. However, such measures could also exacerbate inflationary pressures and further slow economic growth.

References:
[1] https://www.cnbc.com/2025/08/27/putin-acts-like-he-doesnt-want-peace-russias-economy-depends-on-it.html
[2] https://www.investing.com/news/economy-news/russia-slashes-2025-economic-growth-forecast-to-15-from-25-4212866