The 2025 vicious cycle: unimpressive economic growth trims budget revenues, and the latter drags growth

RUSSIA ECONOMICS - In Brief 21 Jan 2026 by Evgeny Gavrilenkov

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It is now widely expected that the 2025 GDP growth figure will be about 1.0%, pointing to a dramatic deceleration of economic growth last year. At the same time, inflation unexpectedly fell to 5.59% – the lowest number in the past five years. The CBR succeeded in bringing inflation down through a series of key rate hikes, so that the pace of disinflation exceeded expectations. High costs of borrowing caused consumer credit growth to decelerate sharply. In 11M25 (the latest available figure), consumer credit expanded by a mere 2.4% YTD. Hence, consumer demand growth decelerated sharply as well.Slow GDP growth—combined with an abnormally strong ruble—affected federal budget revenue collection. In 2025, total revenues grew by 1.6% as the oil-and-gas (O&G) revenues fell by 23.8%, while the non-O&G revenues were up by 12.6%. Given the combined effect of slow economic growth and fast disinflation, the latter number does not look too bad. However, federal budget expenditures were up by a mere 6.8%, which in real terms, is more or less correlated with slowing economic growth. The budget deficit reached 2.6% of GDP last year.Overall, as the economy got addicted to generous stimulus from the budget in 2020-2024, it nearly stopped growing last year amid fading support. The prospects for this year are uncertain, as officials expect GDP to grow by about 1.3% with planned nominal federal budget expenditure to increase by 2.7% only. Total revenues are expected to rise by 8.0%, implying a smaller deficit this year. In nominal terms, the federal budget deficit increased to RUB5.6 trln in 2025, while this year the government targets an R3.8 trln deficit. Most likely, expenditures will b...