Russia's Economic Slowdown Looms in 2025: Top Banker's Warning

In an exclusive interview, a top Russian banker has sounded the alarm on the country's economic prospects for 2025, predicting a slowdown due to persistent sanctions and increased military spending. The banker, speaking on condition of anonymity, cited the impact of international sanctions, particularly those targeting financial institutions, as a key factor contributing to the economic downturn.

The banker's concerns are supported by recent reports. Despite monetary tightening, Russia's early 2024 economic growth remained robust, driven by a tight labor market and continued credit expansion. However, the fiscal outlook has improved with more positive short- and medium-term projections, despite increased military and social spending. The trade surplus remained almost unchanged, masking declines in both exports and imports. Russian imports surged at the end of 2023 but have recently declined due to payment difficulties with third countries, exacerbated by recent U.S. executive orders.

Increased military spending, set to reach 13.5 trillion rubles (€130 billion) in 2025, will strain Russia's economy. This quarter-on-quarter rise of 25% consumes a significant portion of the GDP, with 7-8% allocated to military spending. While the defense budget may seem modest compared to Western powers, its purchasing power, when adjusted for local prices, amounts to €350 billion. This increased spending, coupled with higher taxes for high-income earners and corporations, will likely slow economic growth in 2025, despite a war boom in sectors related to the military-industrial complex.

The sanctions' effectiveness largely depends on substituting high-quality Western goods with lower-quality alternatives. In 2023, Russia secured between 60% and 170% of sanctioned high-priority items compared to 2021 levels. Despite monetary tightening, Russia's early 2024 economic growth remained strong due to a tight labor market and continued credit expansion. The fiscal outlook has improved with more positive short- and medium-term projections despite increased military and social spending. The trade surplus remained almost unchanged, masking declines in both exports and imports. Russian imports surged at the end of 2023 but have recently declined due to payment difficulties with third countries, exacerbated by recent U.S. executive orders.

In conclusion, the top Russian banker's warning of an economic slowdown in 2025 is well-founded, given the persistent impact of sanctions, particularly those targeting financial institutions. The increased military spending, along with the shift towards lower-quality suppliers, will likely exacerbate the economic slowdown in 2025. Investors should closely monitor these developments and adjust their portfolios accordingly.