Russia's Economy Faces Cooling Risks as Minister Calls for Action

Recent developments indicate that Russia's economy may be at risk of significant cooling, with the country's economic minister highlighting the need for immediate action from the central bank. Amidst potential new sanctions from the United States and dwindling oil revenues, the outlook appears bleak.

Economic Minister Maxim Reschetnikow voiced concerns on May 26, noting a slight reduction in inflation rates in Russia. He urged the central bank to consider lowering the high interest rates, which have remained at a staggering 21 percent since October. High borrowing costs are hampering investment activities, which are crucial for economic growth, especially at a time when military expenditures are no longer providing the same level of support for the economy.

As reported by Trading Economics, inflation in Russia stood at 10.2 percent in April 2025, showing a marginal decrease from 10.3 percent in March. This followed five consecutive months of rising inflation. Reschetnikow suggested a realistic forecast of 7.6 percent for inflation in 2025, emphasizing that recent weekly inflation data aligns closely with monthly figures.

The central bank has maintained interest rates at 21 percent, acknowledging a potential downturn in inflation but warning of emerging risks to the economy. These risks are exacerbated by uncertainty stemming from U.S. trade policies and the leadership of President Donald Trump.

Another pressing issue is the declining revenue from oil and gas sales. The Kremlin initially projected oil prices to average $70 per barrel for the year; however, prices have recently plummeted below $50. This decline significantly impacts Russia's economy, as oil exports are a major revenue source. Consequently, the government has already implemented substantial cuts to critical state investment programs in sectors such as aviation and technology, raising concerns about the country's long-term economic viability.

Despite these challenges, the Russian government remains optimistic. President Vladimir Putin recently asserted that Russia ranks fourth globally in terms of purchasing power parity. He credited the resilience and growth of the economy over the past two years, noting increases of 4.1 percent in 2023 and 4.3 percent in 2024.

However, the stock market has reacted negatively to recent announcements from Washington concerning potential new sanctions, leading to significant drops in Russian equities. While Trump has hinted at a more conciliatory approach towards Russia, the uncertainty surrounding future sanctions continues to loom.