Russia: military Keynesianism

The Russian economy is currently experiencing a slowdown after several years of strong growth. Economy Minister Reshetnikov said the economy was on the brink of recession in an FT interview on 19 June 2025. High inflation and interest rates have dissuaded investment, he claimed.

Most forecasts are still for GDP growth of 1% or higher in 2025, falling to under 1% in 2026. Such a 1% growth rate is broadly in line with Russia’s long-run potential GDP growth (particularly because of an ageing and shrinking population) in our view.

Russia is regarded as an emerging G20 country but it (just) achieved World Bank high income status in 2024.

Russia edged into high income status in 2024, to a large extent because of higher military spending.

Inflation remains high – at 9.4% year-on-year in June. That is close to the average rate of 9.3% the IMF expects for the full year. The central bank’s tight monetary policy, under the guidance of Elvira Nabiullina, should eventually bring the inflation rate down but it seems clear that ‘military Keynesianism’ is maintaining tight demand.

But, of course, Russia is still far from being rehabilitated in the world economy.  If that were to change, especially if a peace agreement with Ukraine could be achieved and sanctions lifted, the world would be a less risky place.