From a statistical point of view, last year was excellent for the Russian economy. At a meeting with President Vladimir Putin in early February, Prime Minister Mikhail Mishustin announced GDP growth of 4.1 percent.
This growth is due to a number of industries. First and foremost is the defense industry, which is flourishing thanks to spending in the Russian military budget. This is followed by the automotive industry, which increased its turnover by 50 percent compared to the disastrous year of 2023, and fertilizer production, where growth of 30 percent was recorded, notes the German public media ARD.
What are the expectations?
All experts agree that growth cannot continue at the same pace. The government is hoping for growth of 2 to 2.5 percent, and Economy Minister Maxim Reshetnikov has warned that the decline in growth is already noticeable - the first affected industries have been facing problems since November last year.
Independent analysts are also warning of serious problems. "Many indicators show that the holiday is over", is categorical, the famous economist Natalia Zubarevich. The official data is still questionable, she says, adding that in her opinion, growth will be low and inflation high. And for a long period of time.
Even Dmitry Belousov, brother of Defense Minister Andrei Belousov, who works at a state analytical center, recently agreed with this thesis. According to him, stagflation is coming, that is, high inflation against a background of low or no growth.
Meanwhile, a clear division is observed in the Russian economy. While the defense industry will continue to benefit from government contracts in 2025 and will continue to attract high-wage personnel, other sectors are lagging behind, due to serious difficulties as a result of inflation and a shortage of qualified specialists. These industries cannot compete with defense sector salaries, nor with the high bonuses paid to soldiers on the front lines.
Which industries are affected by the crisis?
The real estate sector is the most affected. Demand was long supported by state-subsidized mortgage loans, but now that the Kremlin is redirecting money, the sector is running out of funds. The crisis has consequences for other industries as well: construction materials production, steel production, and coal mining are also suffering.
The automotive market is also facing a new downturn. New car sales are expected to fall by 15 percent to 1.4 million cars. 700,000 finished cars are in storage waiting for buyers, many car dealerships are threatened with bankruptcy.
What is the impact of the sanctions?
The sanctions have mainly affected the raw materials sector. Recently, sanctions were also imposed on part of Russia's "shadow fleet", which significantly hindered oil exports. The export monopolist was also hit hard in the gas sector. "Gazprom", which has long been the most important source of income for the Russian budget, recorded huge losses in 2024 - for the first time in a quarter of a century of profits. And this year the concern is threatened with even greater losses.
This will mean the Russian budget will lose a significant part of its revenue. For a long time, Moscow benefited from cash reserves in the National Welfare Fund. But since the beginning of the war, about 60% of them have already been spent. And if US President Donald Trump carries out his plans to increase oil production, Russia is threatened with additional losses.
What is the biggest problem of the economy?
The intensive injection of state funds into the economy has led to overheating and fueled inflation, explains ARD. As Putin recently admitted, inflation was 9.9% on an annual basis in early February. It is believed that the actual growth in prices is significantly higher than the official statistics.
The central bank has been trying to control galloping inflation for months. It raised the key interest rate to 21 percent - the highest level in more than 20 years. But while inflation has responded rather weakly for the time being, the private sector is suffering greatly from these conditions. The reason: credit has become virtually inaccessible, which in turn makes investment almost impossible for entrepreneurs. And this is detrimental to the long-term development of the economy.