Russia’s Ministry of Economic Development has delivered a notably downbeat assessment of the country’s economic trajectory on May 12, signalling that growth is likely to stall over the next two years as structural pressures intensify and policy room narrows.

In its updated macroeconomic forecast for 2026, the ministry now expects gross domestic product to expand by just 0.4%, sharply down from the 1.3% projected in October. The revision leaves the economy “just short of a recession”, underscoring the slowdown already visible in recent data thanks to CBR governor Elvia Nabiullina’s unorthodox experiment to cool economic growth to force down the rate of inflation – an experiment that seems to be working so far after inflation fell from a sticky 10% in 2024 to 5.9% now.

In fact, the experiment might be working too well. The downgrade reflects a broader deterioration in underlying conditions. Inflation is converging towards target “more slowly than anticipated” following a two-percentage point hike to VAT in January, investment is declining due to the still sky high interest rates, and the government is increasingly constrained in its ability to raise revenues after having already lifted most major taxes at least once over the past two years.

Minister of Economic Development Maxim Reshetnikov had signalled the adjustment in advance, while President Vladimir Putin has continued to press officials to restore stronger growth. the Central Bank of Russia (CBR) has managed to put through 550bp of cuts in the last year but that has yet to feed through to lifting the economy as the prime rate remains at a crushing 14.5% and the rate that the regulator can cut rates further is going to slow with the revival of inflationary pressures.  

The resulting figure appears to strike what officials privately describe as a compromise between economic reality and political expectations.

Reshetnikov, presenting the outlook to Putin, characterised the situation diplomatically as a “period of fine-tuning” following an earlier phase of rapid expansion.

The weakness is already visible in current activity. Preliminary figures show GDP contracted by 0.3% in the first quarter, following monthly declines of 1.1% in January and 1.8% in February. Officials are now hoping for a modest rebound in the second quarter, partly driven by a favourable calendar effect after a reduction in May holidays.

Even so, the government’s projection remains cautious relative to international peers. The International Monetary Fund expects 1.1% growth this year—an outlook upgraded in mid-April amid the war in Iran—while the World Bank forecasts 0.8%. Russia’s central bank has maintained a range of 0.5–1.5%. Deputy Prime Minister Alexander Novak described the ministry’s scenario as “conservative”.

Medium-term outlook downgraded too

Beyond near-term growth, the medium-term outlook has also deteriorated. The forecast for 2027 has been halved from 2.8% to 1.4%, while the 2028 projection has been cut from 2.5% to 1.9%, reinforcing expectations that the post-war economic boost is fading.

Investment trends point in the same direction. Fixed capital investment is now expected to decline by 1.5% in 2026, compared with a previous forecast of -0.5%, following a -2.3% contraction last year. The shift marks a clear reversal from the investment surge seen in the early years of the war, which officials now acknowledge has given way to a sustained downturn.

Energy assumptions, by contrast, appear deliberately cautious. The government has left its 2026 oil price forecast unchanged at $59 per barrel for Urals crude, despite an average of $64.4 per barrel so far this year and heightened geopolitical tensions linked to the Strait of Hormuz. The oil price assumption is almost certain and underestimate, designed to give the government some good news as the year wears on; Brent was trading at $101 at the time of writing and Russia’s Urals blend at $102, meaning the average price for oil in April and May will almost certainly significantly exceed the $64 per barrel budget benchmark.

Nevertheless, officials are being prudent and say the impact of the Iran conflict will not be lasting. Novak has said the government does not expect a sustained demand shock, suggesting prices could fall back below pre-war levels. Many commentators are now talking about $80 for Brent by the end of the year in anticipation of some sort of Iran war peace deal over the summer. Earlier this year, before the escalation, Russian crude had traded as low as $40 per barrel.

At the same time, the forecast assumes a significantly stronger ruble—by RUB8-10 versus previous projections—a development that, while supportive for inflation, would weigh on fiscal revenues.

Together, these assumptions point to mounting pressure on the budget. Officials are already signalling that by 2027, achieving a structural zero deficit may require cutting expenditure y/y—an outcome described by analysts as unprecedented in modern Russian fiscal practice.

The emerging picture is of an economy that has avoided outright contraction but is losing momentum rapidly. With limited scope for further tax increases and declining investment, policymakers face a narrowing set of options to sustain growth while maintaining fiscal stability, The Bell reports.