Four years after the start of the invasion of Ukraine, the Russian economy is showing marked signs of strain, facing slowing growth, declining oil revenues, and demographic pressures. In 2022, Western leaders predicted a rapid collapse of the Russian economy under the effect of sanctions. While the initial shock caused a contraction in GDP, a sharp increase in military spending then supported activity in 2023 and 2024, propelling Russia to ninth place among global economies in 2025. Although, indicators turned red in 2026.
Economic Slowdown and Revenue Decline
In January, the International Monetary Fund (IMF) revised down its growth forecasts for Russia to 0.6% in 2025, and 0.8% in 2026. Excluding pandemic years, these would be the weakest performances since the recession following the annexation of Crimea in 2014.
This slowdown comes amid a decline in revenues from oil and gas – a pillar of the federal budget. Over January-February, Russian oil and gas revenues are expected to total 800 billion rubles, compared to 1,560 billion rubles (17.2 million euros) over the first two months of 2025, according to Reuters.
Tax Increases and Demographic Challenges
To cover the deficit, authorities have raised several taxes. The corporate tax rate increased from 20% to 25% in 2025, new income tax brackets were introduced, and VAT was raised to 22% at the beginning of 2026, up from 20%.
Russia is too aging: its population fell from 145.5 million in 2019 to 143.5 million in 2024. Declining birth rates, losses on the front, and departures abroad are fueling a labor shortage while the unemployment rate remains very low, around 2%. These structural constraints limit long-term growth potential, regardless of fluctuations in energy prices.
Looking Ahead
Russia will seek to further diversify its economy to reduce its reliance on oil and gas revenues. The government may also implement additional tax increases or spending cuts. Continued demographic decline could exacerbate labor shortages and further constrain economic growth. The impact of ongoing sanctions remains a key factor, and further restrictions could intensify these challenges.
Frequently Asked Questions
What is happening with the Russian economy?
The Russian economy is showing signs of strain, with slowing growth, declining oil revenues, and demographic pressures.
What are the latest growth forecasts for Russia?
The IMF revised down its growth forecasts for Russia to 0.6% in 2025 and 0.8% in 2026.
How has the Russian population changed recently?
Russia’s population decreased from 145.5 million in 2019 to 143.5 million in 2024.
How will Russia adapt to these economic challenges in the coming years?
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