The Russian economy is showing alarming signs of slowdown and exhaustion of its previous growth model, which was based on mobilization resources and military spending. This is stated in an analytical article published by The Wall Street Journal, citing macroeconomic data and expert assessments.

Key symptoms include:

• A decline in industrial production, especially in civilian sectors not linked to the defense industry.
• A slowdown in consumer demand — retail trade is stagnating, and Russians are increasingly forgoing large purchases.
• Persistently high inflation, exceeding 9.2% since the beginning of the year, while real household incomes remain under pressure.
• Fiscal consolidation challenges — the state budget is facing a deficit despite high export revenues from oil and gas, as spending on the military, social support, and import substitution continues to grow.

The Central Bank of Russia maintains a high key interest rate of 16.5%, which curbs inflation but also limits private investment. Banks are reluctant to lend, particularly outside the defense sector, and small and medium-sized businesses continue to report a lack of accessible financing.

According to WSJ experts, the Russian economy could enter a technical recession by autumn 2025, unless structural reforms and an increase in private initiatives are undertaken. The report argues that the “war economy” model, which fueled growth in 2022–2024 through defense contracts and infrastructure programs, has run its course.

“Domestic consumption was supposed to replace lost external demand, but the population’s purchasing power hasn’t recovered after the COVID and sanctions shocks”,
says Natalia Orlova, an economist at the University of Economics and Politics in London.

“Russia is caught in a trap of high deficits and low business activity”, adds Michael Lerner, an analyst at WSJ.

Thus, while businesses are hoping for a rate cut, the Central Bank has not signaled any easing of its monetary policy. Pressure on the ruble is mounting: demand for foreign currency is growing on the domestic market, and international reserves are gradually declining. Fiscal and tax policy adjustments may follow in the autumn — in the run-up to the 2026 elections.

 

Source: The Wall Street Journal

#RUSSIA

05.07.2025 08:50