Russia's Economy Braces for a Cold Snap: Inside the Ministry's Sharply Downgraded Growth Forecast

Russia's macroeconomic outlook darkened markedly in late September 2025, when the Ministry of Economic Development published the baseline variant of the main parameters of its macro-forecast for 2026-2028. The headline numbers were stark: gross domestic product growth of just 1% in 2025 and 1.3% in 2026. As recently as April, the same ministry had pencilled in 2.5% growth for the current year and 2.4% for the next. In a matter of months the expected trajectory of the economy had been cut by roughly half - and, as a representative of the department explained when walking Ekspert through the revision, the general tendency is that the economy is "noticeably slowing down."

The downgrade matters well beyond the arithmetic. It reframes the policy debate in Russia from how fast the economy can expand to how to steer it through a prolonged cooling without tipping into contraction. The September forecast, reported in detail by Ekspert correspondent Yakov Timakov on 24 September 2025, embeds a slower 2025-2026 followed by a re-acceleration to 2.8% in 2027 and 2.5% in 2028. It also, for the first time, fully incorporates the tax decisions that the Ministry of Finance unveiled the very same morning - above all the planned increase in value added tax from 20% to 22%.

A Sharper Turn Than Anyone Expected

The most telling detail in the ministry's explanation is what it reveals about the shape of the slowdown. Earlier versions of the forecast, the representative told the daily, had envisaged a smoother cooling period. The September baseline, by contrast, concentrates the deceleration in the present and next year, pushing the return to healthier growth rates further out along the three-year horizon. The ministry does not consider 3% annual growth to be "something unattainable": in its view, the economy is potentially capable of expanding at that pace against the background of the reserves it has. But, the representative explained, once a multitude of different factors is taken into account - including a longer period of tight monetary policy than had been assumed and slow growth in 2025-2026 - the trajectory will be different.

That distinction between potential and actual growth is the conceptual core of the new forecast. The ministry is not saying that the economy has lost the capacity to grow at around 3% a year; it is saying that the monetary conditions, fiscal adjustments and structural constraints now in place will keep realised growth well below that level for two more years. The implied profile is U-shaped: a trough in 2025-2026, then a climb back toward potential in 2027-2028 as, implicitly, borrowing costs come down - the central bank intends to lower the key rate to 12-13% during 2026 - and as businesses and households adapt to the new tax and budget parameters. Whether that re-acceleration materialises on schedule is the single biggest question hanging over the plan: the forecast simply assumes the cooling ends when the policy drag eases.

April Versus September: What Changed

A line-by-line comparison of the April and September forecasts shows that the revision was not uniformly pessimistic. Several external parameters were actually improved, while the domestic components of demand bore the full weight of the downgrade:

• GDP growth: 2025 - cut from 2.5% to 1%; 2026 - cut from 2.4% to 1.3%; 2027 - 2.8%; 2028 - 2.5%.
• Investment: the 2025 estimate was left unchanged at 1.7% growth, but the 2026 projection was slashed to 0.5% against the 3% expansion expected in April.
• Unemployment: tightened for 2025 to 2.3%, softened for 2026 to 2.6%; the April version had held unemployment at 2.5% for several years ahead.
• Real disposable incomes: 2025 - cut from 5.9% to 3.8%; 2026 - from 4.6% to 2.7%.
• Urals crude: the average 2025 price assumption was raised from $56 to $58 per barrel; the 2026 estimate was trimmed from $61 to $59.
• Trade balance: improved markedly - $106.9bn for 2025 against the $86.8bn expected in April, and $126bn for 2026 against $107.6bn.
• The ruble: the average dollar exchange rate for 2025 was set at 86.1 rubles instead of 94.3, and for 2026 at 92.2 rubles instead of the 100.2 pencilled in during spring.

The pattern is revealing. The external side of the forecast - oil prices, the trade surplus - looks better than it did in spring, yet the growth outlook was nearly halved. That combination points to an internally driven cooling: monetary tightness, investment restraint and slower income growth, rather than any deterioration in external conditions. In other words, the ministry is describing a policy-induced slowdown in domestic demand that even a substantially stronger trade balance cannot offset.

The VAT Overlay: A One-Off Shock to Prices

One of the most consequential assumptions baked into the September baseline is fiscal. The ministry representative confirmed that all the potential tax decisions the Ministry of Finance publicised on the morning of 24 September are already built into the forecast - first and foremost the expected increase in VAT from 20% to 22%. Economists surveyed by Ekspert had earlier noted that the hike was bound to leave a mark on inflation. Yet the ministry's current price-growth forecast fits neatly within the range that appeared in the Bank of Russia's July medium-term projection: the regulator is orienting toward inflation of 6-7% by the end of the year, and the ministry sees 6.8%.

The reason for that apparent calm is the ministry's reading of the VAT effect as strictly temporary. "In the case of a decision being taken on VAT, the effect will be one-off; it will stretch across the fourth quarter of this year and the first quarter of next year, just as in 2018-2019," the representative stressed, referring to the previous increase in the tax. On that logic, the price-level shift feeds through once and then drops out of the year-on-year comparison, leaving the underlying trend intact. The macro-forecast goes further still: the ministry considers the 4% inflation target achievable next year and sees it being maintained throughout the entire three-year period - an optimistic reading, given that the ministry's own year-end projection stands at 6.8% and the VAT pass-through has not yet begun.

Investment: The Weakest Link in the Forecast

Nowhere is the downgrade more dramatic than in investment. The ministry left its 2025 estimate untouched at 1.7% growth, but for 2026 it now expects just 0.5% - against the 3% expansion projected in April. That is a near-total erasure of expected investment momentum, and it sets the tone for the entire three-year plan.

Mikhail Gordienko, professor at the Department of Sustainable Development Finance of the Plekhanov Russian University of Economics, provided the historical context for why the figure stings. The high investment base of 2023-2024, he recalled, was built despite the expectations of those who had predicted a swift collapse of the Russian economy after the departure of foreign investors: investment grew by 9.8% in 2023 and by 7.4% in 2024, and growth in the first half of 2025 compared with the same period of 2024 was estimated at 4.3%. But solving the task of investment stimulus in the coming three-year period, Gordienko concluded, is constrained not only by the key rate but also by the declining share of oil and gas revenues in the budget, by logistics, and by the shortage of labour - a bind that rate cuts alone cannot loosen.

Incomes and the Labour Market: Tight but Poorer

The labour-market parameters were adjusted in opposite directions, and both adjustments tell the same story of extreme tightness. For 2025 the ministry tightened its unemployment forecast to 2.3%; for 2026 it softened expectations to 2.6%, where the April version had unemployment pinned at 2.5% for several years ahead. Unemployment in the low 2% range is an extraordinarily tight labour market, corroborating the personnel deficit that economists identify as a structural constraint on growth.

Household finances absorbed some of the harshest revisions in the entire document. Expected growth in real disposable monetary incomes of the population for 2025 was cut to 3.8% from the 5.9% projected half a year earlier; for 2026 the forecast now stands at 2.7% against April's 4.6%. Slower income growth caps the consumption-led component of any recovery. With investment nearly flat in the ministry's 2026 baseline, the burden of keeping the economy above the recession line falls on state spending and on whatever consumer demand survives the squeeze from high real borrowing costs and decelerating pay.

Oil, the Trade Balance and a Ruble Short of Strength

The external assumptions were revised with a degree of internal tension worth unpacking. As of September, the ministry expects the average price of Russia's Urals crude to reach $58 per barrel in 2025 - up from the $56 it had assumed in April - while the 2026 estimate was corrected downward from $61 to $59. Finance Minister Anton Siluanov has previously noted that his department is setting the goal of weakening the state treasury's dependence on oil and gas revenues by lowering the "cut-off price" within the framework of the budget rule. The official announced that this threshold would be reduced by $1 per year so that by 2030, instead of the current $60, the cut-off falls to $55 per barrel. That strategy deliberately decouples the fiscal position from any single year's oil price.

The ministry's estimate of the trade balance - exports minus imports - improved substantially: $106.9bn in 2025 against the $86.8bn expected in April, and $126bn in 2026 versus $107.6bn. Yet, as the article notes, all of that is unlikely to hold the ruble back from weakening. The ministry representative stressed that "a great many factors" could shift the projected exchange rate of the national currency. "We have been seeing a certain weakening of the ruble since the middle of the year. Most likely, this tendency will continue," he summed up. The baseline nonetheless assumes an average dollar rate of 86.1 rubles in 2025 - stronger than April's 94.3 - and 92.2 rubles in 2026 against the 100.2 previously forecast: a managed glide path rather than a disorderly slide.

A Consolidated Position and the Recession 'Red Line'

One of the most striking features of the September revision is convergence. The forecasts of the Ministry of Economic Development and the Bank of Russia for 2025-2026 have moved noticeably closer on the key parameters - investment, GDP growth and consumption. Alexander Abramov, head of the Laboratory for the Analysis of Institutions and Financial Markets at RANEPA, the Presidential Academy, told Ekspert that the fact of the two agencies demonstrating a consolidated position can itself be considered positive. More importantly, both forecasts fix what he called a peculiar "red line": not to allow a recession either this year or next.

Abramov nonetheless expects the ministry's forecast to draw critics from the real sector, against the backdrop of low expected growth rates for both investment and the economy as a whole. He is also sceptical that the monetary authorities will deliver the full rigour their projections imply. For the Bank of Russia, he noted, the fundamental task remains achieving 4% inflation by the end of 2026, and it is precisely that which conditions the hardness of the regulator's forecast - but in practice the target is unlikely to be attained. In reality, monetary policy will prove softer than is assumed today, Abramov argued. That, in his estimation, would create the conditions for at least zero or weak but positive investment dynamics, and would allow the economy to grow faster than the ministry forecasts: he expects 2026 growth rates to sit closer to 1.5-2%.

The State as the Engine of Growth

Where Abramov leans on monetary pragmatism, Gordienko leans on fiscal muscle. Negative GDP dynamics will be avoided thanks to the active participation of the state in the economy, he is confident. Growth, he stressed in his commentary to Ekspert, will rest not only on the dynamics of the key rate - which the central bank intends to bring down to 12-13% in 2026 - but also on the volume of support for the military-industrial complex. Where private investment hesitates at double-digit real rates, budget-funded demand keeps the production lines busy and the headline GDP figure above zero.

The risks Gordienko identifies are external and logistical rather than demand-side: the decisions of OPEC+ on oil output volumes, on which export prices depend; the availability of imported components for enterprises; and the "predictability of logistics". That triad - commodity cartel policy, access to imports, and the reliability of supply routes - defines the vulnerability of a growth model that leans on state spending while the private investment cycle idles. Notably, none of these risks is priced explicitly in the baseline beyond the oil assumptions themselves.

The Missing 'Long' Money

The investment slowdown is natural, but with double-digit real rates on loans, keeping growth rates positive at all is already a good result, observes Ilya Fedorov, chief economist at BCS World of Investments. His deeper point concerns composition rather than volume. What matters more, he argues, is the quality of investment: while a significant part of state subsidies is absorbed by construction, in the sphere of labour automation and the raising of labour productivity there are no substantial results even in conditions of acknowledged staff shortages.

Fedorov's diagnosis of the financial plumbing is bleaker still. The economy, he emphasised, has no "long" money that could finance long-term projects. The greater part of it is now created exclusively through the subsidising of interest rates by the Ministry of Finance, and long-term money is unavailable to most companies. "That is why the planning horizon in the economy is very short," the economist summed up. The implication is direct: a plan that assumes re-acceleration in 2027-2028 requires businesses to commit today to multi-year projects - yet the financial system, in Fedorov's telling, gives almost no one the instruments or the confidence to do so.

What Will Decide 2026

Read as a whole, the September baseline is less a prediction than a policy statement: the authorities have accepted a long cooling, intend to outlast it without a recession, and are counting on the state to bridge the gap until rates fall far enough for private investment to stir. The variables that will decide whether the plan works are visible in the forecast's own seams:

1. Whether monetary policy in practice turns out softer than both forecasts assume, as Abramov expects - and whether that lifts 2026 growth from the official 1.3% toward his 1.5-2% range.
2. Whether the VAT increase to 22% stays a one-off price-level shock contained within the fourth quarter of 2025 and the first quarter of 2026, as in 2018-2019, or begins feeding persistent inflation expectations that delay rate cuts.
3. Whether investment retains any positive momentum in 2026, and whether its quality shifts from subsidy-fed construction toward automation and productivity gains that address the labour shortage.
4. Whether the ruble follows the ministry's glide path - 86.1 rubles per dollar on average in 2025 and 92.2 in 2026 - given the weakening tendency visible since mid-year.
5. Whether the budget rule's cut-off price keeps falling by $1 a year toward $55 by 2030, steadily reducing the treasury's dependence on oil and gas revenues exactly as Siluanov has pledged.
6. Whether OPEC+ output decisions, imported component availability and logistics predictability - Gordienko's risk triad - remain benign enough for the export and supply assumptions to hold.

The "red line" both agencies have drawn - no recession in 2025 or 2026 - is an achievable one on these numbers, but only just. Growth of 1% and 1.3% leaves almost no margin for an external shock, a policy error or a sharper-than-expected investment freeze. The ministry's honest answer to the question of how the economy gets back to 3% is that it does not know yet: the trajectory, as its representative conceded, will be different from what potential alone would suggest. For businesses and households planning beyond the short horizon that Fedorov describes, that uncertainty - more than any single number in the forecast - is the defining feature of the new macroeconomic landscape.