Russia's economy hits contraction as growth slows down

In early 2025, the Russian economy showed signs of significant downturn, with its GDP declining by 0.6 percent from the previous three months. This marked the first contraction since 2022, attributed to a mix of external pressures such as Western sanctions and the fallout from the war on Ukraine. Prior to the slowdown, the economy had been fueled by heavy government spending to support military efforts, leading to years of rapid growth, particularly in the production of military equipment. Recent economic indicators suggested inflation was soaring, leading to an expectation that the central bank would struggle to stabilize the situation. Economists have expressed concerns about the implications of this economic stagnation. Igor Lipsits, a noted Russian economist, indicated that the ongoing crisis was intensifying, warning that the measures taken to address inflation could further destabilize the economy. The government, while hoping to maintain the support from citizens for the Ukraine conflict, now faces challenges as more individuals find it difficult to meet their living expenses, potentially increasing enlistment to the armed forces due to the introduction of wage incentives by the Defense Ministry. As budget forecasts are adjusted to reflect this slowdown, Russian officials are confronted with an impending budget deficit projected at 5 billion rubles ($62 billion) by 2025. This worsened fiscal environment raises alarms about the potential impact on public welfare, as prices are expected to rise sharply amid a contracting economy. Budget experts warn that as revenues decline, the population may experience a significant decline in real purchasing power, further straining household budgets and quality of life. Overall, the economic landscape in Russia is increasingly precarious, with both the Kremlin and citizens trying to adapt to these new realities. The looming deficit and stagnating conditions suggest a tumultuous period ahead for both public policy and everyday life as the effects of the current economic strategies become clearer. The role of government spending, particularly on military initiatives, will likely continue to trigger debate among stakeholders concerned about the balance of military versus economic priorities in an already strained environment.