The Russian economy appears set for a sharper slowdown as the heavy burden of military spending clashes with restraints on important sectors, according to multiple reports.
Data cited by the agency indicate that while Russia’s GDP expanded by about 4 percent year over year in the second quarter, analysts anticipate a meaningful deceleration in the latter half of the year. The expected pullback would reflect a shift from rapid, state-driven momentum to a more tempered pace as buoyant sectors lose some support and financial conditions tighten.
Experts point to several forces behind the slowdown. A tug-of-war between defense needs and civilian activity has begun to strain manpower resources, posing a constraint on the labor market that persists beyond temporary surges in demand. In addition, the construction and banking sectors are feeling the impact of higher borrowing costs as the bulk of concessional mortgage programs have ended, reducing stimulus for home construction and related lending activity.
“This marks the last burst of growth before the economy enters a clearly cooler phase,” remarked an economist from Bloomberg Economics, underscoring the transition from rapid expansion to a more moderate trajectory.
Unemployment has fallen to a historically low level, with Rosstat reporting figures around 2.4 percent, a rate that compares favorably with many advanced economies. Yet, total employment across enterprises remains capped at roughly two million workers, suggesting that the labor market has tightened to a level that could restrain further sustained gains.
Looking ahead, forecasts indicate growth might slow to around 2 percent in the second half of the year and potentially drift to a range of 0.5 to 1.5 percent next year. These projections reflect a mix of ongoing fiscal pressures, shifting external demand, and monetary policy responses aimed at stability rather than acceleration.
Bank of Russia Governor Elvira Nabiullina has emphasized that both labor reserves and production capacity are being tested, signaling tighter resource constraints as the economy adapts to the current environment. In a bid to counter stagflation risks and restore credibility to price stability, the central bank raised the policy rate by 200 basis points to 18 percent in July. The move aims to curb inflationary pressures while supporting the ruble and anchoring expectations for future monetary policy.
Earlier remarks from Nabiullina outlined the rationale for the rate increase, highlighting the delicate balance the central bank must strike between containing inflation and avoiding a sharp reversal in economic activity. Analysts note that the policy stance will continue to evolve with incoming data on inflation, growth, and external conditions, underscoring the importance of watching how credit conditions and consumer demand adjust in the quarters ahead.