Quick Read
- Sberbank CEO German Gref warns of ‘technical stagnation’ in Russia’s economy, with growth at near-zero levels.
- High interest rates, currently at 18%, are a major factor stalling recovery; experts suggest rates must drop to 12% or lower.
- Falling oil and gas revenues, a soaring budget deficit, and Ukrainian drone strikes have worsened the economic outlook.
- Sanctions and escalating war costs are tightening the noose around Russia’s economy, risking a prolonged recession.
The warning bells for Russia’s economy are ringing louder than ever. German Gref, CEO of Sberbank, the country’s largest bank, recently described the nation’s economic state as being in ‘technical stagnation.’ This announcement, made during the Eastern Economic Forum in Vladivostok on September 4, 2025, comes as a culmination of persistent challenges—high interest rates, plummeting oil and gas revenues, mounting sanctions, and the ongoing costs of the war in Ukraine.
High Interest Rates and Economic Cooling
One of the primary drivers of this stagnation is Russia’s soaring interest rates. According to Gref, the Central Bank’s monetary policy has significantly hampered economic growth. Last autumn, interest rates peaked at 21% in an effort to curb inflation, though they have since been lowered to 18%. Gref argued that even this reduction is insufficient, predicting that the rate might fall to 14% by the end of 2025. However, he stressed that only a drop to 12% or lower would meaningfully stimulate economic recovery.
Speaking at the forum, Gref stated, “The economy is approaching zero. Restarting the economy later will be much harder than cooling it down.” This aligns with sentiments shared by other Russian economic experts, including Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, who advocated for rate cuts to as low as 10–12% to spur growth.
Falling Energy Revenues and Budget Deficits
Russia’s reliance on energy exports has made it particularly vulnerable to external shocks. The Finance Ministry recently reported a budget deficit of 4.88 trillion rubles ($61.1 billion) from January to July 2025, exceeding the annual projection within just six months. Oil and gas revenues have fallen for the fourth consecutive month, with a dramatic 36% decline between July and August, as reported by Kommersant.
The situation has been exacerbated by Ukrainian drone strikes on Russian oil infrastructure, which have disrupted up to 20% of the country’s fuel production. This has forced Russia to extend its export bans into September, further straining the economy. Analysts cited by Politico warned that these disruptions are having a cascading effect, leading to domestic fuel shortages and weakened export capacity.
The Impact of Sanctions and War Costs
Sanctions imposed by Western nations since the onset of the Ukraine war have significantly limited Russia’s access to critical technologies and international markets. Combined with the spiraling costs of the war, these sanctions are tightening the noose around the Russian economy. According to Kyiv Post, nearly a fifth of Russia’s refining capacity has been rendered inoperative, compounding the challenges posed by falling global oil prices and a stronger ruble.
Despite these challenges, the Kremlin continues to project confidence. President Vladimir Putin, speaking at the Eastern Economic Forum, emphasized Russia’s pivot to Asia as a strategy to counteract Western sanctions. However, experts like Alexander Kolyandr of the Center for European Policy Analysis (CEPA) argue that this strategy may not be sufficient to stave off a prolonged recession.
What Lies Ahead?
While the Kremlin has attempted to manage a “cooling” of the economy, experts warn that this strategy risks tipping into full-blown stagnation. The Ministry of Economic Development is in the process of revising its macroeconomic forecast, acknowledging that the current trajectory deviates significantly from earlier projections.
As Gref and other experts have pointed out, the path to recovery will require significant policy shifts, including drastic cuts to interest rates and greater investment in domestic industries. However, with sanctions tightening and war expenses escalating, the window for effective action may be narrowing.
Russia’s economic challenges underscore the precarious balance between managing external pressures and fostering internal stability. Without decisive action, the country risks slipping into a prolonged recession with far-reaching consequences for its citizens and global standing.