Published on: 2026-05-12
Source: Government of the Russian Federation –
An important disclaimer is at the bottom of this article.
Alexander Novak: We have a great reserve of resilience, the economy is adapting to new challenges.
Question:Our economy grew at a rate of over 4% per year in 2023–2024. But in 2025, there was a sharp slowdown. Data for the first quarter shows that the economy went into the negative. What are the reasons?
A. Novak:Indeed, in 2023–2024 we experienced very high growth rates. Over the past three years, including 2025, in real terms GDP increased by more than 10%. This is a growth of about 3.3% per year, above the world average, emphasizing that it is noticeably higher than the average rate for 2017–2019, when it was possible to achieve the target benchmark for monetary-credit policy (MCP).
Such growth allows us to reliably hold 4th place among the largest economies in the world by purchasing power parity. Russia has occupied this position since 2021. The gap in per capita income with developed countries has significantly narrowed.
At the same time, the difference from the period of 2017–2019, when the growth rate was on average 2.3% per year, was that the economy was developing under conditions of unprecedented sanctions pressure. Many companies from “unfriendly” countries left our market. Everything was done to complicate our access to world markets, to undermine our economy. Such actions included the freezing of assets, attempts to cut off from the international payments system, direct bans on trade with Russia and the provision of services, restrictions on access to technologies and investments.The sanctions list includes an increasing number of Russian companies from various sectors, as well as companies from other countries subjected to “secondary” sanctions. At the same time, the sanctions continue to grow – the EU has introduced 20 packages and is preparing the 21st.
In these conditions, the high growth rates of 2023–2024 were ensured by a combination of factors both from the demand side and from the supply side.
The expanding demand from domestic and foreign companies and the increasing need for import substitution have created opportunities for growth in domestic production across almost all sectors – from machine building to tourism. In the processing industry, production volumes in 2025 have increased by almost 23% compared to 2022. In certain sectors, growth rates were even higher. For example, computer technology production has nearly doubled over three years, the output of finished metal products also doubled, pharmaceutical production increased by 40%, and electrical equipment by almost 30%.
Also, in the industry working in defense and security, production has increased significantly. All this has led to a considerable demand for labor, a reduction in unemployment to historically minimal levels (2.2% on average by 2025), and wage growth.
The expansion of production was accompanied by an equally impressive increase in investments – new capacities were required. There arose a need to restructure export flows – investments in infrastructure grew. Under conditions of high demand for labor, the implementation of automation and robotization began to proceed more actively.
These processes were supported by the state. The macroeconomic stability ensured in previous years, the accumulated reserves, including the NWF, allowed for budgetary support of investments, industrial production, and the development of own technologies. It should be emphasized: without a balanced, measured, and moderately conservative macro-policy, from 2016 to 2021, the state would have had much more limited opportunities to cushion the shocks that hit the economy in 2022 and to expand financing of new priorities.The government used a wide range of instruments: preferential loans, direct budget financing of priority projects, customs-tariff regulation measures, etc.
Over the past three years, real monetary incomes of the population increased by 26.1%. The growth occurred due to all components: wages, social payments, entrepreneurial incomes, and property incomes. These are the highest rates in the last 20 years. The real wage growth over three years was 23.9%, including 4.4% in 2025. Poverty decreased to historically minimal levels – 6.7% based on the results of 2025.
It should necessarily be taken into account that economic dynamics are cyclical – after a period of high growth there is always an adjustment, often accompanied by structural transformation. This is a normal stage for the economy. Special attention must be paid to risk management in order to mitigate the consequences and ensure a faster transition to balanced economic growth.
Question:What structural challenges are the most significant right now?
A. Novak:And a few.
We have a structural shortage of personnel and labor market constraints. As I have previously noted, alongside low unemployment in certain sectors, there is a shortage of personnel, while the employment of the population has reached maximum levels, and there are practically no idle labor resources. The lag in labor productivity growth behind wages always leads to such imbalances. An active redistribution of labor to areas that contribute more significantly to GDP is required. This process is underway and has accelerated in the last few quarters.But there are still many companies that say they cannot fully provide themselves with employees.
Another challenge is changing the structure of budget expenditures. You know that over the past few years, overall funding has increased for education, healthcare, social protection, economic development, strengthening technological sovereignty, and, of course, for defense expenditures, security, including special military operations (SMO), support for our soldiers and their family members.
Another challenge is the disruption of established global supply chains for goods, services, capital movements, and even labor. Sanctions that have been in effect since 2022 and were imposed solely for political reasons only destroy trust, make trade inefficient, reduce the benefits of economies of scale in production. And sometimes the result of sanctions is directly the opposite outcome.As our president said back in 2022, “Being aware of the colossal amount of difficulties that lie ahead of us, we will intensively and competently seek new solutions, effectively use the already existing sovereign technological advances and developments of domestic innovative companies.” And we are doing this consistently. We are strengthening our economic and technological sovereignty so that we are less exposed to the influence of such unfriendly actions.
And also, of course, moderately strict CPI is also a consequence of risks. What is the “price” for demand outpacing supply, and for a labor market shortage? This is inflation. In the macroeconomic sense, it is not so important on which side the shock occurred – accelerated demand growth or slowed supply growth; it always leads to price increases. The government and the Bank of Russia in such a situation act within their powers, complementing and balancing each other’s decisions.
Question:What does this balance look like?
A. Novak:The government is developing the supply-side economy by stimulating the production of goods and services. Consistent work is being done to strengthen technological leadership. Today, many countries continue to use their control over financial, logistical, production, and scientific infrastructure against Russia. The sectors where it is most necessary to achieve independence from foreign decisions as soon as possible are machine tool building, chemical industry, transport and power engineering, radio electronics, aircraft manufacturing, shipbuilding, and automotive industry. No one will concede these sectors without a fight.These industries are capital-intensive, requiring the procurement and maintenance of complex equipment. They also require high-quality raw materials and materials, as well as comprehensive scientific and engineering support. Therefore, at the time of sanctions introduction, there was a fairly large share of imports — around 60–70%. In the long-term perspective, this will have a strictly deflationary effect, according to the words. But now, of course, in the short term, expenditures on technological leadership contribute to the growth of budget expenditures.
In turn, the Bank of Russia regulates the key rate, the value of which affects demand, consumer and investment activity. It influences the liquidity of many financial instruments in the economy. The purpose of this policy is to maintain the annual inflation close to the target level. Currently, this is 4%.
We in the government understand, and of course, the Bank of Russia also takes into account that the longer a moderately strict DCP lasts, the longer the period of restrained growth will be. But at the same time, we understand that the greater the gap between supply and demand, the longer the strict DCP can be.
Question:What are the expectations for 2026 and beyond? When will economic growth resume? What is the government doing to restore growth rates?
A. Novak:Since today, scenario conditions for socio-economic development up to 2029 will be published. They are conservative both in terms of external parameters and internal ones.
We expect that in 2026 it will be possible to maintain a positive GDP growth of +0.4%. Then there will be a period of recovery in growth rates from 1.4% in 2027 to 2.4% in 2029. Inflation will approach 5.2% in 2026 and will be close to the target level of 4% starting from 2027.
The government is conducting a systematic work to return the economic dynamics to a trajectory of sustainable long-term growth not below average global rates and to achieve national development goals, creating conditions whereby resources, personnel, and investments are reallocated to more productive sectors. This reallocation involves changes in the economy’s structure, exports, the labor market, and the social sphere toward more effective forms of organization.Therefore, improvement in business conditions, reduction of excessive barriers, personnel training, technological upgrading, increased labor productivity, enhanced targeting of social support measures, and “economic whitening” are so important.
At the last Council on Strategic Development and National Projects, the president set tasks for ensuring such structural changes in the economy. The Plan of Structural Changes aimed at this was adopted by the government at the end of 2025.
Question:Let’s go through these plan items. Investment is the foundation of current and future growth. In 2025, a decrease in investments by 2.3% was observed. What is this decline related to? What is being done to restore investment activity?
A. Novak:The decline in investments in 2025 occurred from a very high level. From 2021 to 2024, investments in real terms increased by almost 38%, including in 2024 – by 8.4%, in 2023 – by 9.8%. That is, the level of annual investments itself was extremely high.
In 2024–2025, the cost of borrowing became very high for most companies. The volume of companies’ own funds (profit as a source of investment) returned to long-term average indicators, which were lower than in 2023–2024. A positive trend was the gradual shift from bank financing to bond issuance – the share in debt financing grew from 20% in 2021 to 24% in 2025. But not many companies are ready to take the next step – to move from debt to equity financing, to enter the capital market.Overall, we face a systematic work on the development of the financial market and the long-term savings market.
At the same time, it is important that the already started investment projects are not “abandoned” and are being implemented as planned. This has become possible, among other things, thanks to the use of investment support tools, such as the Project Finance Factory, agreements on the protection and promotion of capital investments (SZPK), infrastructural budget loans, and others.
In 2026, an inertial continuation of the decline in investment activity is expected. Further growth will resume from 2027, when production capacities align with demand, low inflation positively influences interest rates, providing room for further easing of monetary policy, and taking into account lags, the effect of the easing that has already occurred will become noticeable.
Structural measures undertaken by the government are also extremely important for the restoration of investment growth.
Firstly, this is an improvement of the investment climate and a reduction of business costs. Here, not only procedures, timing, and the cost of the investment cycle are important, but also ensuring stable and clear rules of the game: protection of property rights, predictability of law enforcement, clear and effective dispute resolution mechanisms. Without this, even with reduced rates, part of the business will prefer to conserve liquidity rather than engage in long-term investment projects.
An important tool here is the National Model of Target Conditions for Conducting Business, which is also part of the Structural Change Plan. It was developed in close cooperation with the business community and approved by government order at the end of 2025. Roadmaps have been adopted for key business issues such as tape joining, tax reporting, dispute resolution, registration procedures, and more, with active work currently underway on their implementation. Amendments to bankruptcy legislation have also been prepared to allow for the preservation of operating businesses during periods of temporary difficulty.
In addition, changing the structure of financing investment projects. The main thing is to stimulate the development of the capital market, the IPO exit of companies. Linking state support, including concessional lending, with exit to the capital market.
Thirdly, careful attention to the investment programs of large state companies. On one hand, many state companies are natural monopolies and their problems, including reduced demand in conditions of economic slowdown, are transferred to everyone through tariffs. On the other hand, they are “anchor” customers, and a sharp change in their investment programs can threaten the development of many industries.Therefore, a necessary delicate balance of tariff policy, increasing internal efficiency, a more thorough assessment of the economics of specific investment projects, rejection of frontal capacity expansion, and an emphasis on effective utilization. Optimization of state company investment programs is important also from the perspective of ensuring access to credit resources for the entire economy. Credit is not unlimited, and the more state companies borrow from banks, the fewer loan funds remain for everyone else.State companies, especially the largest ones, are obliged, if not completely, then primarily to reorient from bank financing to the bond market. They can do this, unlike small and medium-sized businesses for which bank financing will remain a more significant source.
Question:What will happen with salaries, incomes, unemployment? What structural changes will occur in the labor market?
A. Novak:In 2026, real growth of the population’s disposable income is expected to be 1.6%. In 2027–2029, the growth rates of income will increase as the pace of economic dynamics accelerates.
Despite the slowdown in the pace of economic growth, we forecast that unemployment will remain at a low level (within 2.3–2.4%). We objectively have limited labor resources due to demographics. By 2030, the growth of the working-age population will cease. The main increase in the workforce will be formed by youth and pre-retirement age individuals, whose employment level is lower.Therefore, labor market flexibility in the broad sense is extremely important — including the timely release of workers during economic downturns and the possibility of increasing labor intensity (additional work for additional pay), when there is a necessity for this. This is the focus of, in particular, amendments to labor legislation that are now being prepared in the State Duma for the second reading.
It is important that in conditions of limited labor resources, the priority task is the growth of labor productivity. This term is not always understood correctly. Labor productivity is not an increase in its intensity, when you are forced to work more for the same money. On the contrary, labor productivity growth means that with the same effort, a person can produce more and ultimately earn more. It depends not only on capital intensity (the number of machines), but largely on the organization of production processes.Therefore, productivity growth implies a complex of technological changes, such as robotization and the use of artificial intelligence, as well as organizational changes, including process optimization, elimination of excessive reporting, removal of administrative barriers.
This is delicate work that necessarily takes into account the specifics of a particular industry, and even the peculiarities of processes at a specific enterprise. Therefore, industry departments, together with business, have developed 17 industry programs to increase labor productivity and are working on them. Special attention is paid to the budgetary sphere, where retaining qualified personnel in conditions of competition with the private sector, given the existing budget constraints, is increasingly difficult. Here, productivity growth is vital, including as the basis for competitive wages.
The result of work to increase labor market flexibility and its productivity should be a change in the employment structure – redistribution of labor resources from sectors where employment optimization is required, to sectors that require an influx of workers.
Question:More and more often companies complain that there is simply no demand for IT products. If growth slows down, will demand become a strict limiter of economic growth? How is the structure of demand changing?
A. Novak:Until 2025, there was a significant growth in incomes. The growth of real monetary incomes amounted to 6.5% in 2023, 9.9% in 2024, and 7.7% in 2025. Although these are record values, a significant part was directed towards savings. The savings rate reached 16.6% in 2025 – an absolute record for many years. On the one hand, restrained demand does not allow inflation to accelerate. However, on the other hand, lack of demand is an obstacle to development. No demand – no production.
Demand will slow down, but it will not become a constraint on long-term and sustainable economic growth. In 2026, we expect a slowdown in the dynamics of consumer activity (total turnover of retail trade, paid services, and catering – “Vedomosti”) in real terms to +1.2% year-on-year after +4.0% year-on-year in 2025. Further – gradual growth up to 3% per year. But these are still high values. In addition to growth in incomes themselves, demand should be supported by a gradual decrease in rates. This support will come through several channels. First, a reduction in the savings rate, i.e.Increase in the share of current household consumption, which is spent rather than saved. Secondly, an increase in the portion of accumulated deposits. Thirdly, an increase in consumer credit. Overall, household consumption will remain the main source of GDP growth in 2026–2029.
At the same time, the very structure of consumption changes under the influence of several factors: population growth, changes in relative prices of goods, changes in consumer preferences, and transformation of trade.
For a range of products such as basic necessities, household appliances, electronics, the market is saturated. For another range of products, there is great potential for further demand growth. This is the experience economy, including inbound and outbound tourism, and catering.
At the same time, the way goods and services are received by consumers is also changing. Since 2020, internet commerce has been growing rapidly, including due to the shift on internet platforms of “classic” retail and consumer imports. Only during the period 2022–2024, the internet commerce sector as a whole and marketplaces in particular have grown more than 2.5 times. It is important to note that the development of marketplaces is not only a convenience for buyers. It is also a decentralization of economic growth, providing an opportunity to access the all-Russian market for small enterprises from across the country. Therefore, the government now pays great attention to marketplaces.The main task before us is not to allow the monopolization of the market by marketplaces, to maintain competition both between platforms and within the platform among sellers, and also to protect consumer rights.
Summarizing: the demand in a number of industries is now 20–30% lower than it was at the peak of overheating in 2024. Firstly, the peak of the cycle, especially one as intense as in 2023–2024, is not the point at which a stable structural level of demand should be assessed. Especially in the sectors of long-lasting goods, real estate, and investment goods. Secondly, if there were a general decline in demand in the economy, we would see a rise in unemployment. If this is not observed, it means that workers released from production where demand has decreased are moving to places where there is still no shortage of labor.
Question:Inflation is what directly worries people. Will it be possible to bring inflation back to the 4% target? And is it even necessary?
A. Novak:The trajectory of economic development is a balance. Thanks to the coordinated efforts of the government and the Bank of Russia, we have managed to achieve a significant slowdown in inflation to 5.6% by the end of 2025; in 2024, this indicator was 9.5%. By 2026, we expect the inflation slowdown to continue: the forecast is 5.2% in December 2026 compared to December 2025. And according to the Bank of Russia’s target, annual inflation will be reached in 2027. So far, we see that inflation has substantially slowed down and continues to slow down.
The government contributes to the task of maintaining price stability through efforts to support competition and prevent abuse of dominant positions by individual sellers, flexible customs-tariff policy that allows balancing demand through imports in the absence of sufficient domestic production.
In general, low inflation is a benefit for the economy, predictability of business conditions, and stability for consumers. But it is necessary to seek a balance between economic growth and inflation. However, pursuing the inflation target at any cost, including a significant reduction in economic output, and “accelerating” the economy with the risk of entering uncontrolled inflation growth, is not advisable.
The main criterion of balance is the quality of life of our people. This is understood both by the government and the Bank of Russia. Extremes are harmful; they lead to a decrease in quality of life. A year ago, at the beginning of 2025, the president set the task of moving towards a model of balanced growth with a consistently low level of unemployment and maintaining inflation at a stable low level, provided that structural imbalances do not form in the Russian economy.We have established systematic interaction with the Bank of Russia, including on issues of evaluating the volumes and structure of lending, parameters of budget policy, the stability of the financial sector, and individual sectors of the economy.
Coordinated monetary-credit and tax-budgetary policy is necessary and helps to consolidate the reduction of inflation, normalize financial conditions and inflation expectations, and, as a result, restore investment activity.
Question:How does the conflict in the Middle East affect the Russian economy? Will we benefit from the rise in global oil prices?
A. Novak:The conflict has both short-term and long-term consequences. The closure of the Strait of Hormuz at the moment blocked access to the market for a third of the world’s energy exports: 35% of oil and 20% of gas, more than 40% of the export of by-products of hydrocarbon production — sulfur and helium, as well as for the supply of industrial goods from the Middle East — primary polymers used for the production of packaging and synthetic fibers, fertilizers, and aluminum. Interruptions in the supply of raw materials also caused secondary effects.For example, the production of phosphorus and complex fertilizers cannot be done without sulfur, and the production of semiconductors and the maintenance of the operating capability of MRI devices – without helium. Due to the shortage of energy resources in Bangladesh and Pakistan, which are key suppliers of textiles, its production is limited. All of this affected global prices for the corresponding goods, which in the chain put pressure further: there is a risk of global price increases for food, cotton, and other goods.
It is important to continue pursuing a pragmatic and conservative policy. The crisis creates prerequisites for growth in exports of food products and oil and gas, as well as a range of other goods. But this effect is not long-term in nature. According to assessments by various international agencies, the conflict will lead to a reduction in the growth rates of global GDP by 0.3–0.5 percentage points in 2026–2027 — possibly more, depending on its duration. In the countries of South-East Asia, which are more dependent on oil imports from the region, the decline could be significantly greater.And this means that in the medium term, global demand will decrease and prices may fall even below the level that existed before the conflict.
This is exactly why, under the scenario conditions, we took a rather conservative approach to the forecast of export prices for oil: $59 per barrel in 2026 and $50 in 2027–2029. In addition, the effect on the budget is partially offset by the exchange rate. Growth in export prices leads to an increase in the positive balance of trade and the current account, which supports the strengthening of the ruble.
At the same time, additional inflationary risks arise due to the transfer of global price growth to the domestic market. For “high-risk” goods, a built mechanism of balancing between the domestic and external markets operates (fuel, sulfur, wheat, corn, fertilizers, petroleum products). But it is important to monitor the market situation and promptly fine-tune the corresponding mechanisms.
Thus, the situation that has developed in the external market should not be considered as an additional source for solving budgetary and macroeconomic tasks.
Question:A forecast is the basis of the budget. But there is also a reverse influence — budget parameters affect the forecast. Will it be possible to balance the budget and how the budget policy will influence economic growth?
A. Novak:Indeed, this is a highway with two-way traffic. The forecast determines the budget parameters, but the budget influences the pace of economic growth. The government faces the task of balancing the budget taking into account the reduction of expenditures — mainly due to the strong ruble exchange rate and the period of low oil prices — and the growth of expenditure needs, including ensuring defense and security. Here, the main task is the prioritization of expenditures, with an emphasis on the most effective areas that provide maximum return, such as projects of technological leadership.Selection of tools, the most cost-effective in terms of cost-result ratio. This work is carried out and will continue throughout the entire budget cycle. And a very important point to emphasize once again: all decisions related to technological leadership, in addition to significantly influencing economic growth, will have a strictly disinflationary effect in the long term. Because they will reduce our dependence on breaks in the external supply chains and increase the supply of high-tech products within the country.
Budget balancing is, among other things, a condition for the gradual easing of the debt and deficit policy (DDP), which means expanding opportunities for economic growth. The more predictable and sustainable the budget policy is, the more room there is to reduce inflationary risks and gradually normalize rates.
Question:If we sum up – how great are the risks for our economy?
A. Novak:The Russian economy has successfully overcome the most difficult periods: the pandemic, the sanctions shock of 2022. Of course, there are external and internal risks and challenges. We consider and analyze various scenarios of economic development, including stress scenarios – what will happen if the risks materialize – in order to be prepared for different development options of events. But overall, we have a large reserve of resilience, the economy adapts to new challenges, so we will be able to overcome difficulties and ensure consistent and sustainable economic development, growth in incomes and citizens’ well-being.
Source – The newspaper “Vedomosti”
Please note; This information is raw content obtained directly from the information source. It represents an exact report of what the source asserts and does not necessarily reflect the position of MIL-OSI or its clients.