The Russian economy has narrowly avoided a technical recession. According to new estimates, GDP in Q2 2025 grew 1.5% year-on-year, achieving enough quarter-on-quarter growth to break the streak of declines. However, this result is not driven by consumers, businesses, or investment — the sole engine keeping the economy running is state defense spending.

Growth Without Vitality

Private consumption is falling, loans are expensive, and credit activity is collapsing. The Russian Central Bank’s strict policy is suffocating nearly all economic activity outside government-funded areas. The benchmark interest rate was held at a record 21% from October to June in an effort to curb inflation and cool an overheated market. The result has been a sharp slowdown in domestic demand and business investment.

Most of the recorded GDP growth — now estimated by the central bank at 1.8% compared to 1.4% in Q1 — comes directly from defense spending. Other sectors remain weak and show no signs of recovery.

Putin Warns Against Recession

President Vladimir Putin admitted this week that “many experts see risks of excessive cooling of the economy, even recession.” He nevertheless urged the central bank to “remain vigilant” and prevent an economic downturn.

After Economy Minister Maxim Reshetnikov warned that the country might be on the brink of recession, the central bank began to cautiously step back. Over its last two meetings, it cut rates by 300 basis points in an attempt to revive economic momentum.

Meeting With Trump Could Change the Game

A key turning point could come on Friday, when Putin is set to meet US President Donald Trump in Alaska. The main topic will be the war in Ukraine — and the outcome of the talks may determine whether Moscow gains relief from some sanctions or faces even tougher restrictions.

If the conflict ends on terms favorable to the Kremlin, economist William Jackson of Capital Economics says it could lead to a partial easing of sanctions, easing budgetary pressure and freeing up resources for the civilian economy. On the other hand, continued fighting could, according to Tatiana Orlova of Oxford Economics, trigger harsher sanctions — particularly on oil and gas exports — and push the country back into recession.

An Economy on the Edge

Even the current growth is not a sign of genuine recovery. Dmitry Polevoy of Astra Asset Management warns that the latest data “clearly indicate the risk of returning to negative trends in the second half of the year.”

Without massive wartime state spending, Russia’s GDP would likely already be contracting. All other sectors are struggling under the weight of high interest rates, inflation, and long-term sanctions. Any change in political or military direction could trigger a rapid downturn.

#russia , #putin , #economy , #Inflation , #Geopolitics

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