Economy of Russia showing signs of deceleration, according to Rosstat reports.
The Russian economy narrowly avoided a technical recession in Q2 2025, managing to grow by 1.1% following a 1.4% growth in Q1. This modest recovery can be attributed to several key factors, despite facing significant challenges.
Driving Economic Activity
The primary driver of economic activity was state spending, particularly in defense, which helped maintain some level of growth. Industrial production showed a slight increase, with a year-on-year growth of 1.8% in Q2, which helped offset weaknesses in other sectors.
Monetary Policy Adjustments
The Bank of Russia adjusted its monetary policy by cutting the key rate by 200 basis points to 18.00% in July 2025. This move could help alleviate some of the economic strain by reducing borrowing costs. However, the policy remains tight to ensure inflation returns to target levels.
Impact on Mortgage Rates and Housing Market
While specific mortgage rate data for Q2 2025 is not available, the overall high interest rate environment has likely kept mortgage rates elevated. This has contributed to declining borrowing and reduced demand for housing, affecting the broader economy.
Economic Challenges Remain
The Russian economy's near avoidance of a technical recession in Q2 2025 highlights the ongoing challenges, including the impact of high interest rates and state-driven economic activity. The reliance on state spending, particularly for defense, underscores the economy's vulnerability to external factors and the need for a diversified economic strategy to sustain growth.
Outlook for the Future
Market participants anticipate a normalization of consumer price dynamics following the key rate cut, which may contribute to a gradual recovery of the slowed GDP growth rate. Danil Nametkin, Director of the Center for Investment Analysis and Macroeconomic Research at the Center for Strategic Research (CSR), stated that the increase in product output is maintained in "most important sectors" despite some economic cooling.
However, the exact number of Russian Monogorods affected by sanctions has not been specified in the article. The CSR Experts have estimated this number, but the methodology used remains unclear. It's essential to monitor these developments closely as they could potentially impact the Russian economy in the future.
The adjustments in monetary policy, specifically the cut in the key rate by the Bank of Russia, could help finance business activities by reducing borrowing costs. Despite the modest recovery observed in the business sector, the Russian economy still faces economic challenges, particularly the vulnerability to external factors due to reliance on state spending, particularly for defense.
