Russia: Stagnation or Recession? by Mateus Kozlov

Since February 2022, the European Union has adopted 16 sanctions packages against Russia. These measures primarily targeted sectors such as energy, infrastructure, trade, financial services, and the banking sector, but also extended to many other areas.

The main goal is to undermine Russia’s military and technological capabilities and compel it to cease military actions [1]. The potential of the Russian economy is significant, but it is not infinite and has its limits. The result of the sanctions pressure is already a steady increase in inflation since April 2023 [2] and a decline in GDP [3]. To better understand the possibilities of further interaction with Russia, it is necessary to determine whether an economic crisis would occur in the country and in what form it would take.

Various institutions have developed scenarios for the future. Most of them converge on several positions, which are expressed by prominent representatives of both state and private structures. The Central Bank of Russia (CBR) outlines four scenarios: baseline, disinflationary, pro-inflationary, and risk-based [4]. The Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) presents three scenarios: autarky, institutional inertia, and struggle for growth [5]. Crisis situations generally boil down to two phenomena: recession and stagnation. The CBR’s risk-based scenario implies the emergence of a global recession, and Russia, integrated into the global division of labor through globalization, would fall into recession along with other countries. The CMASF’s institutional inertia scenario suggests that indecision in conducting economic policy will lead to mere maintenance of macroeconomic stability and, as a result, stagnation.

Let us emphasize that two negative scenarios are forecasted: stagnation and recession. We will examine them separately. Stagnation is a state of the economy characterized by a prolonged period of no growth (or minimal growth) nor downturn. The first reason is the acute shortage of personnel in key economic sectors [6], caused by the lack of suitable working conditions and the emigration of highly qualified specialists. The labor shortage leads to an overall reduction in economic activity. The second reason is restricted access to modern technologies and equipment due to international sanctions [7]. Combined with the “brain drain,” the closure of access to high technologies and equipment slows down the activity of large corporations, small and medium-sized businesses, and leads to a greater focus on maintaining the achieved level of development. Third, state control and intervention hinder the development of the private sector [8]. An inert and bureaucratic state system is unable to respond promptly to changes in the business environment, resulting in delayed and untimely reforms, leading to stabilization and minimal, almost zero growth. Experts also note that this could be the result of the exhaustion of temporary factors that stimulated growth in previous years (budget injections and defense spending) [9]. Thus, the Russian economy has both internal and external reasons slowing down development and realistically creating the possibility of stagnation.

When discussing another crisis phenomenon, it is important to emphasize that a recession is a deeper and more prolonged decline in economic activity. In Russia, a recession could be triggered by several factors. The first is a tight monetary policy, one of the signals of which is a high key rate. The increase in the key rate has made loans more expensive for businesses and individuals. This has led to a reduction in investment activity. Additionally, expensive loans have reduced consumer demand [10], as people spend less on major purchases such as housing, cars, or household appliances. In the context of what some economists call a “money famine” [11], such a policy could potentially lead to even more devastating consequences. The second factor (also a clear marker of tight monetary policy) is the reduction of fiscal stimulus: a decrease in state injections into non-military sectors of the economy and an increase in military spending [12]. Government spending plays a significant role in maintaining economic development, especially in conditions of weak private demand. High military spending diverts resources from important sectors such as healthcare, education, infrastructure, and science. This could lead to a slowdown in the development of these sectors and a decline in the quality of life for the population. Thus, it can be said that Russia has a very strong internal foundation for the emergence of a recession.

When considering both stagnation and recession scenarios in the economy, it is necessary to identify which sectors are most vulnerable in a crisis situation. The first sector is industry. According to CMASF observations, industrial production growth in February 2024 was only 0.5%, and this trend has persisted since mid-2023 [13]. Industry significantly affects overall GDP and is considered by some experts as a driver of economic growth in general. It is emphasized that stagnation in this sector will lead to a crisis in other areas [14]. Among the reasons for the slowdown in industrial growth are export restrictions, lack of modernization, high utilization of production capacities, and tightening monetary policy [15]. Another vulnerable sector is construction, which is closely linked to industrial production [16]. Among the factors slowing down the development of this industry, the most prominent are also tight monetary policy, the absence of favorable housing purchase programs, and the completion of state construction programs [17]. Since this is a large-scale industry, its slowdown and stoppage will negatively affect other sectors due to the disruption of inter-industry balance. Another sector that could potentially trigger an economic crisis is agriculture. This is due to declining profitability, stagnation in domestic and global grain prices, an oversupply in the domestic market, and rising fuel and other resource costs [18]. Agriculture is part of the agro-industrial complex (AIC), so potential problems in this sector will affect the entire AIC, leading to a food crisis and issues in other areas. Thus, it is necessary to closely monitor the dynamics of industry, construction, and agriculture, as a potential crisis could start in these sectors.

In examining which scenario is more likely—stagnation or recession—it is important to emphasize that the transition to stagnation has already occurred [19]. The question is whether it will continue at the same pace or whether a slide into recession is possible in the near future. Currently, Russia is between these two situations, and it is difficult to say which scenario is more likely. The government’s next steps will clarify Russia’s economic future, and if competent actions are taken, Russia will undoubtedly be able to avoid any crisis phenomena.

1. European Commission. (2025). EU adopts 16th package of sanctions against Russia. Retrieved from https://ec.europa.eu/commission/presscorner/detail/pt/ip_25_585 (accessed: 01.03.2025).
2. Central Bank of Russia. (2023). Inflation dynamics in Russia. Retrieved from https://www.cbr.ru/hd_base/infl/ (accessed: 01.03.2025).
3. World Bank. (2023). GDP growth (annual %) – Russia. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2023&locations=RU&start=1960&view=chart
4. Finam. (2024). Four scenarios for the development of the Russian economy for 2025–2027. Retrieved from https://www.finam.ru/publications/item/chetyre-stsenariya-razvitiya-rossiyskoy-ekonomiki-na-2025-2027-gody-20240830-1210/ (accessed: 02.03.2025).
5. RBC. (2022). Russian economy: Forecasts and challenges. Retrieved from https://www.rbc.ru/economics/11/08/2022/62f384ed9a79473c8719c8fc?ysclid=m7taw39fls224940626 (accessed: 02.03.2025).
6. The Moscow Times. (2025). Stagflation or recession: What awaits the Russian economy in 2025? Retrieved from https://www.moscowtimes.ru/2025/01/23/analiz-stagflyatsiya-ili-retsessiya-chto-zhdet-ekonomiku-rossii-v-2025-godu-a153051 (accessed: 02.03.2025).
7. Banki.ru. (2025). Economic stagnation in Russia: Causes and consequences. Retrieved from https://www.banki.ru/news/lenta/?id=11002604 (accessed: 02.03.2025).
8. Banki.ru. (2025). Tight monetary policy and its impact on the Russian economy. Retrieved from https://www.banki.ru/news/lenta/?id=11004969 (accessed: 02.03.2025).
9. DW. (2025). Russian State Duma adopts budget for 2025 with record military spending. Retrieved from https://www.dw.com/ru/gosduma-prinala-budzet-na-2025-god-s-rekordnymi-tratami-na-vojnu/a-70845777 (accessed: 02.03.2025).
10. Forecast.ru. (2024). Macroeconomic review: Industrial production trends in Russia. Retrieved from http://www.forecast.ru/_ARCHIVE/Mon_MK/2024/macro47.pdf (accessed: 03.03.2025).
11. eLibrary. (2023). Industry as a driver of economic growth. Retrieved from https://elibrary.ru/item.asp?id=49134201 (accessed: 03.03.2025).
12. Izvestia. (2024). Limits of growth: How the slowdown in industrial production will affect GDP. Retrieved from https://iz.ru/1646189/dmitrii-migunov/predely-rosta-kak-tormozhenie-v-promproizvodstve-otrazitsia-na-vvp (accessed: 03.03.2025).
13. UATV. (2024). The Russian economy has practically exhausted its internal reserves: Everything leads to stagnation. Retrieved from https://uatv.ua/rossijskaya-ekonomika-prakticheski-ischerpala-vnutrennie-rezervy-vse-vedet-k-stagnatsii-pendzin/ (accessed: 03.03.2025).
14. Kommersant. (2024). Challenges in the construction sector: Tight monetary policy and its consequences. Retrieved from https://www.kommersant.ru/doc/6892259 (accessed: 03.03.2025).
15. Nezavisimaya Gazeta. (2024). Editorial: The state of the Russian economy in 2024. Retrieved from https://www.ng.ru/editorial/2024-04-09/2_8990_red.html?ysclid=m7uc6c2yye478831736 (accessed: 03.03.2025).
16. Nezavisimaya Gazeta. (2025). Stagnation in the Russian economy: Causes and prospects. Retrieved from https://www.ng.ru/economics/2025-03-03/1_9204_stagnation.html?ysclid=m7u6lchzv0117609958 (accessed: 03.03.2025).
17. DP.RU. (2025). The Russian economy has already begun to slow down. Retrieved from https://www.dp.ru/a/2025/01/16/uzhe-nachalos-jekonomika (accessed: 03.03.2025).
18. Banki.ru. (2025). The impact of sanctions on the Russian economy. Retrieved from https://www.banki.ru/news/lenta/?id=11002604 (accessed: 03.03.2025).
19. Banki.ru. (2025). The consequences of tight monetary policy in Russia. Retrieved from https://www.banki.ru/news/lenta/?id=11004969 (accessed: 03.03.2025).

• Mateus Kozlov is a researcher at the Russian Academy of National Economy and Public Administration under the President of the Russian Federation.