The growth of the russian economy, triggered by the transition to military rails, has passed its peak after overheating in the first half of 2024. Next year, it expects either a soft or a hard "landing".
This is reported by the Bloomberg agency with reference to analysts and economists.
Military production, which has fueled strong growth in recent quarters, continues to grow, but not enough to offset declines in other sectors of the economy. This is according to a recent report by the Bank of Finland Institute for Emerging Economies (BOFIT).
And last Tuesday, October 22, the International Monetary Fund lowered its forecast for the russian economy and now sees growth in 2025 at the level of 1.3%, against 1.5% previously.
According to S&P Global, the purchasing managers' index in russia's manufacturing industry entered the contraction zone for the first time since April 2022 in September.
Slowing growth outside the military-industrial sector underscores russia's ongoing transformation into a military economy. In 2023, the country quickly recovered from a recession following the invasion of Ukraine, growing its economy by 3.6% per year through defense spending. Now there are real fears that growth in military production may come at the expense of civilian industries.
Industrial production rose 3.2% year-on-year in September, compared with 2.7% in August. This included a significant jump in categories related to the production of defense products.
Interest rates in russia are already at crisis levels, and the Central Bank of the russian federation may raise them to 20% on Friday. They were at such a high level in the first weeks after the beginning of the invasion.
According to Bloomberg, the Central Bank now predicts growth this year at the level of 3.5-4%. During the year, the country's efforts were aimed at slowing the overheating of the economy, as the resources needed to increase production are almost exhausted.
According to BOFIT, growth is expected to slow in the second half of the year due to production constraints and stretched labor supply. In 2025 and 2026, this indicator will decrease to 1% per year.
The Bloomberg Economics economic activity tracker, which combines about 60 main indicators of the state of the economy of the russian federation, indicates that activity has been steadily decreasing since the end of 2023.
"This means that after two years of growth of about 3.5%, in 2025 the growth rate of the economy will most likely decrease to 1-2%," Bloomberg Economics economist Alex Isakov said.
Oxford Economics economist Tetyana Orlova said in a Bloomberg comment that the growth of the manufacturing industry of the russian federation has recently slowed down. This indicates that the limitations of production capacity are beginning to show. To support growth, an increase in investment is necessary, but this seems unlikely given the level of the Central Bank of the russian federation's discount rate.
BOFIT analysts believe that investments can remain at such a high level only in the sectors of the russian economy that take a direct part in the war.
According to Anders Olofsgård, an associate professor at the Stockholm Institute of Economics, russia's economic growth prospects were bleak even before the full-scale invasion of Ukraine. Now they look even more gloomy.
As Ukrainian News Agency earlier reported, in July of this year, the Central Bank of the russian federation predicted the stagnation of the russian economy, which would be accompanied by inflation and the loss of imported goods.
It will be recalled that at the beginning of the year, British intelligence explained how a war against Ukraine could cause russia's economy to overheat.
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