Russia: military Keynesianism

Jun 4
2 min read

The strength of Russia's economy in 2023 and 2024 (GDP growth exceeded 4% in both years), fuelled by a 25% increase in defence spending, has not continued. GDP growth is forecast by the IMF at 1.1% for both 2026 and 2027 under their reference scenario. This reference scenario sees a quick resolution to the Iran war and oil prices averaging $82 in 2026 – a scenario which now looks much less likely. Indeed, the Russian government has recently downgraded its forecast for 2026 from 1.3% to 0.4% after a reported contraction in GDP in the first quarter. Labour shortages, excessive government spending and western sanctions against Russia were blamed for the downgrade by Alexander Novak, Russia’s deputy prime minister.

Russia is regarded as an emerging G20 country but it (just) achieved World Bank high income status in 2024 and it has the highest per capita GDP of the BRICS (Brazil, Russia, India, China and South Africa).

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 Governor Elvira Nabiullina, seems likely to be effective.

Fiscal Position

The overall level of Russia’ government debt, forecast at just 19% of GDP in 2026, is low, although it is expected to rise over the next five years.

External Position

The strong current account position is expected to be maintained in 2026. The net foreign asset position was strong in 2021, at around USD500 billion. . There are no data since then and, of course, some USD400m of assets are under sanction.

Money and Credit

Private sector credit has declined relative to GDP from a peak in 2020. But broad money growth remains too high. The policy interest rate has been cut from 21% in June 2025 to 14.5% now but still looks high given growth and inflation expectations.

Governance and Competitiveness

Russia is still seen as a highly corrupt economy and levels of economic freedom are low.