Russia's economic slowdown bites harder
This week, we analyze how Russia’s economic slowdown is hitting harder, with worse still on the horizon, and look at Russia selling off its gold reserves.
Hello! Welcome to your weekly guide to the Russian economy, written by Alexandra Prokopenko and Alexander Kolyandr and brought to you by The Bell.
Alexandra Prokopenko / Alexander Kolyandr
22 November 2025
The slowdown accelerates
Russia’s economy continues to cool. In Q3, GDP growth dipped to 0.6% and in Q4 could drop into negative territory. Even defense manufacturing failed to grow, probably because it is at the limit of its physical capacity. In 2026, the economy could move into long-term stagnation.
Industrial growth stalls
After growth of 1.4% and 1.1% in the first two quarters of the year, the economy slowed to just 0.6% in the third quarter, according to official figures from Rosstat. That was slightly higher than the typically pessimistic Central Bank forecast of 0.4% issued a week ago.
The forecast for the final three months of the year shows zero growth, or possibly even a small contraction (which could be explained by a high base effect). Economists both inside and outside of Russia are almost unanimous that the slowdown will peak in the first quarter of 2026. Predictions for growth this year as a whole fluctuate between 0.5% and 1%.
The extent of the slowdown varies in different sectors. In September, manufacturing expanded by just 0.3% in annual terms and was down 1% on a seasonally-adjusted basis compared with August. According to estimates from the government-linked Center for Macroeconomic Analysis and Forecasting (founded by Andrei Belousov, defense minister and one-time deputy PM overseeing the economy), industrial output fell for the fourth consecutive month in August at an average rate of 0.4%.
Construction has almost ground to a halt (+0.2% year-on-year) and the production of construction materials has plummeted (-8.6%). This trend suggests that companies are reaching the end of long-term projects and have few new ones to replace them. This is probably due to high interest rates and the curtailing of preferential mortgage programs that had fueled a construction and homebuying boom.
Of 24 manufacturing sectors, only five are showing growth of 1% or more, with 17 in outright contraction. The production index is expanding slower than both prices and wages, meaning the actual volume is falling.
Russia’s defense sector is reaching peak capacity, according to analysts at the Institute of Economic Forecasting.
This is also visible in Rosstat figures. Production of transport equipment was up just 6% in September, having previously recorded an average growth of 36% this year. Output of metal products was down 1.6%, whereas before it was growing at 18%. This may indicate that factories are already working at their limit and cannot churn out any more. Among military-related industries, stable and high growth remains in pharmaceutical production (+21.2%) and the manufacture of computers, electronics and optical products (+18.4%).
Along with the slowdown, overall utilization is also declining. In manufacturing it runs at 70%, compared with 78% across the whole economy, suggesting there is spare capacity and room for growth. However, without investment, that unused capacity will not spark economic growth. Even government forecasts for the 2026 budget predict that investment will fall. As a result, the structure of the economy is becoming more primitive and one-sided with a clearer bias towards the military-industrial sector. With investment stalled and foreign trade highly volatile, consumer consumption is the only reliable source of economic growth, according to the Center for Macroeconomic Analysis and Short-term Forecasting.
Household incomes slow
Household incomes are still on the up, supporting the faint growth that still exists in the economy. According to Sberindex (based on real spending data by clients of Sberbank, the country’s largest bank), Russians spent 7.3 trillion rubles ($92 billion) in October, 9.9% more than a year ago. After inflation, that’s real growth of around 2%, meaning people really are buying more, rather than simply spending more on the same purchases due to higher prices.
However, even here, there are signs of a slowdown. If we compare August-September with May-June, then after adjusting for inflation people spent slightly less (-0.24%), especially on food and eating out. Demand is still increasing, but the pace of that increase is slowing.
Meanwhile, inflation is coming down. In October, it dropped to 7.7%, according to the Central Bank, down from levels of 9.4% in June and 10.3% in March. But the impact of one-off factors in October remained significant. Amid Ukrainian drone attacks on Russian oil refineries, petroleum prices continued to rise sharply. Prices for fruit and vegetables went up faster than usual for that time of year. Meanwhile, businesses’ price expectations are at their highest since the start of the year and continue to increase amid an impending rise in prices due to the upcoming tax hikes. Retailers expect wholesale prices to rise by almost 12% year-on-year over the next three months.
What’s coming next?
The Q3 data have revived the debate around whether Russia is already in recession. Kirill Tremasov, an adviser to Central Bank Governor Elvira Nabiullina insists that there is no technical recession. “This is obvious from any analysis of income trends and unemployment rates,” he said. By definition, a recession is a slowdown in economic growth or a slump in production, accompanied by a decline in business activity, rising unemployment and falling salaries. But Tremasov said Russia has almost full employment (2.1% unemployment), businesses have investment plans, and salaries are rising, leading to wealthier households.
Officially, he’s right. But his calculations omitted industrial output, which is steadily falling, and the wage data used was from July, even though August figures are available and show a significant fall month-on-month, noted economist Dmitry Polevoy.
In the end, a semantic argument is meaningless. The current slowdown could easily spark a technical recession. But this does not imply a crisis that would require urgent government intervention, rather it would be a return to a slower overall growth trajectory via a downturn.
The authorities are preparing for things to get worse before they improve. Officials have held several meetings on how to present the slowdown to the public, a participant told The Bell. They decided not to focus on potentially negative or near-zero growth figures, but instead emphasize that the government is doing everything it can to ensure financial stability and security. And Meduza reported the Kremlin has circulated a memo to state media arguing that the West — which is ramping up military spending — is to blame for the tax hikes, forcing Russia to “respond in kind.” The memo also claims that the higher taxes will help preserve social support measures and maintain the country’s security.
Why the world should care
Russia’s economic slowdown continues, and there is more to come at the start of next year. This is not just a statistical pause after two years of overheating, but a symptom of the structural limitations inherent in Moscow’s military growth model. Without investment and external demand, the economy is heading for long-term stagnation, with growth supported by direct intervention rather than market forces.
Russia starts selling gold reserves
The Central Bank began its first sales of physical gold from its reserves as part of the finance ministry’s efforts to fund the budget deficit. With gold at record high levels, this is more lucrative than selling off Russia’s new reserve currency, the Chinese yuan.
Gold sales take place within the framework of the government’s rule for managing assets from the National Welfare Fund (NWF). While oil export revenues are falling (which they have been throughout 2025), the finance ministry sells liquid assets from the NWF to raise rubles. After the invasion of Ukraine and imposition of sanctions, the Chinese yuan and gold are the last two remaining liquid assets Russia has in its arsenal.
Unlike the yuan, which the Central Bank sold on the market, all gold transactions up until now have been virtual: the government did not sell on the market, and the Central Bank kept the actual metal in its vaults. As a result, Russia’s overall gold reserves (not just the NWF sovereign wealth fund) topped 2,300 tons and are the fifth largest in the world. The Central Bank has not sold its gold on the domestic market, only bought it. But now things have changed.
Before the invasion, the NWF itself had accumulated 405.7 tons of gold. Since then, more than half (232.6 tons) has been sold to cover budget spending. On Nov. 1, 2025, there were 173.1 tons of gold in the fund. The total volume of NWF liquid assets, in either gold or Chinese yuan, has fallen 55% to 4.165 trillion rubles (about $52 billion). In relative terms, the volume of liquid assets has plunged from 7.3% of Russia’s GDP before the war to 1.9% today. This is due not only to active drawdowns, but also to the nominal strengthening of the ruble.
Why the world should care
Selling off gold is not an indication of a crisis or a panicked attempt to patch holes in the budget. Instead, it’s a rational move from the Central Bank. The fund’s assets must be sold to compensate for lower oil revenues. At the same time, the bank clearly does not want to burn through its yuan reserves. Selling currency from the fund, along with some flexibility over timing, is the bank’s only remaining tool to smooth over currency fluctuations, given how low market liquidity is due to the exit of foreign investors. Meanwhile, gold prices are rising on higher demand due to steeper inflation and general market uncertainty. Therefore, selling off physical gold is a logical step. If this had happened before sanctions, it might have impacted global gold prices. But since Russia is excluded from any price fixing and cannot sell on world exchanges or export any of its gold, world prices are unlikely to be affected.
Selling yuan, however, could create problems on both sides: it risks pushing the ruble to a level that is too strong to support the budget, while also running into weak demand, since Russian companies already hold plenty of yuan and would not be willing buyers. A telling sign of that is the government’s plan to issue Eurobonds denominated in the Chinese currency to create an outlet for the corporate stash.
Figures of the Week
The upcoming rise in taxes and service fees at the start of 2026 has raised inflation expectations among Russians. The expected level of price rises climbed to 13.3% in November 2025 from 12.6% in October. Observed inflation also increased from 14.1% to 14.5%. Expected inflation among those with savings went up from 11.1% to 12.2%, the highest level since March. Inflation expectations are among the factors considered by the Central Bank when setting its base rate.
State mortgage bank Dom.RF held an IPO, marking the first privatization deal in Russia since 2020 and the country’s biggest market placement since the invasion of Ukraine. The IPO raised 25 billion rubles ($310 million), with a market capitalization of 315 billion rubles (almost $3 billion).
Sberbank boss German Gref announced that the bank will lay off 20% of its staff by the end of the year. The workers facing the chop are those that have been identified as low-performing by an AI-led analysis. At the start of 2025, it employed 308,000 people. Sber began mass layoffs earlier in the year and its headcount was down to 294,500 at the end of September. There could be another 45,000 jobs set to go, based on Gref’s statement.
Weekly inflation went up from 0.09% to 0.11% from Nov. 11-17. Annual inflation, as a sum of the past 12 months, fell from 7.47% to 7.2%.
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