Ice or flame: how much has the Russian economy cooled
Last week, the Bank of Russia lowered its key rate by 1 percentage point to 20% for the first time in 32 months. The decision was made against the background of constantly incoming signals about the cooling of the Russian economy. To a large extent, this is the case: inflation, a decrease in the number of vacancies, and a decline in lending suggest that it is time to reduce the rate, otherwise you may run into a hard landing. But not everything is so clear with the indicators: some say strictly the opposite — the economic boom of the last two years in Russia has not ended yet. What are the pros and cons of the thesis about the "cold" economy — in the material of Izvestia.
For: inflation has risen
The main indicator that the Central Bank focuses on is inflation. Everything is already pretty clear here. In the week from May 27 to June 5, it was 0.05%, having been below the 0.1% level for the fifth time. By the same period of 2024, it had dropped to 9.66%, thus falling below the double-digit mark. In annualized terms (how would prices have increased over the year if all the weeks had been the same as last week), the price increase is slightly more than 3%, which is significantly lower than the target of the Bank of Russia. To this, we can add the fact that producer prices are already openly falling, which should affect consumer prices in the future. Finally, we have a strong ruble, and this is also clearly a disinflationary factor. Thus, inflation is slowing down faster than the Central Bank expected.
The credit market is also frozen. The size and total volume of loans are rapidly falling in almost all areas. For example, the volume of mortgage issuance in Russia in January – April 2025 decreased by 45% compared to the same period last year, to 868.96 billion rubles. For car loans, the decline in the first quarter was even steeper — by 57.8%. Credit card limits are also starting to decrease, despite the fact that there is no significant decrease in the quality of borrowers. In addition to exorbitant interest rates (which are high not only in nominal but also in real terms), macroprudential requirements (government policy measures aimed at preventing major crises) have been sharply tightened, which have practically stopped the credit machine in the country. In these circumstances, it has become extremely difficult to borrow money for both individuals and businesses for investment purposes and operational business.
As a result, GDP growth is slowing sharply. According to preliminary estimates, it was only 1.4% in the first quarter compared to the same period last year (4.5% in the fourth quarter of 2024). Moreover, the growth figures were below most forecasts, both by the Ministry of Economic Development and the Central Bank, as well as analysts' expectations. A more accurate assessment will be given in mid-June, but so far everything indicates severe braking.
It also has a direct impact on the labor market. The index of conditions on it, according to regular research hh.ru The ratio of resumes to vacancies is no longer the same as it was a year ago. In May, it was 5.6, which is almost twice as much as at the lowest point in June 2024. The current level of competition in the labor market is moderate and indicates a healthy ratio between employers and job seekers. The median salary, according to the estimates of the same HH, has also not changed for three months in a row.
Cons: investments are growing
But there are also quite strong arguments against the fact that the economy is cooling dramatically, to the extent that monetary policy needs to be sharply eased. In this sense, the situation with unemployment is most characteristic (despite the situation with vacancies). In March, the indicator rose slightly, to 2.4%, but then dropped back to historically low levels of 2.3%. This indicates almost full employment. Among the G20 countries, unemployment in Russia is one of the lowest in the world, even lower only in Mexico. Such a low percentage of people looking for work may indicate the ongoing overheating of the economy.
However, there are several "buts" here at once. First, unemployment and employment are lagging indicators. It often happens that the economy already has all the signs of a recession, but there are still no significant job cuts. Mass layoffs require very clear signs of a weakening economy — only after that do companies decide to make cuts. Secondly, in Russia, a huge part of the population is employed in the informal, "garage" sector, and a considerable number of people do not join the labor exchange at all. Therefore, the level of employment in itself is not yet an exhaustive criterion of the state of the economy.
A rather curious picture is emerging in the field of investments. According to Rosstat data published last week, in the first quarter of this year, their growth was 8.7% compared to the same period in 2024. Moreover, growth even accelerated when compared with the dynamics observed in the fourth quarter of last year. It is characteristic that investments in manufacturing showed the fastest growth, which increased by 42%. Investments in chemicals (+69.2%), clothing production (+44.4%), woodworking (+34.7%) and culture and entertainment (+49.9%) also increased. At the same time, investments in the public sector and defense dropped significantly — by 22.2%. Investments in catering, hotel business and information and communication sphere also decreased.
Such rapid growth, however, can be explained by factors unrelated to the economic cycle. For example, the construction season started earlier this year due to the warm winter (although note that the winter of 2023-2024 was also not too cold). In general, investment activity always falls at the beginning of the year, which is associated with the frequent commissioning of facilities in the second half of the year. Typically, the first quarter accounts for less than a sixth of all annual investments. In this regard, the figures may not look very representative of the indicators that will be recorded for the whole year.
In addition, real incomes of the population continue to grow. According to the results of the first quarter, they immediately jumped by 8.4%. This indicates that employers are willing to pay their employees a lot of money, individual entrepreneurs and the self-employed earn in excess, and income from investment activities remains high. That is, at least in the first months of this year, the weakening of the economy did not fully reach the Russians and did not affect their available financial resources.
Finally, rather ambiguous data comes from measuring business activity. Although the results are far from the peaks of 2023-2024, they still remain in the positive zone and sometimes even accelerate. Thus, the PMI index of the Russian service sector in May 2025 amounted to 52.2 points, rising from April's 50.1 points. And the manufacturing PMI, which was in the red in April (indicators below 50 mean a fall, higher — an increase), rose again to 50.2 points in May — although here the rise is more likely on the verge of statistical error. But even in these circumstances, it is hardly necessary to talk about a recession — rather about a smooth slowdown.
Conclusions
Thus, two opposing trends are noticeable. Summing up the observations, we can conclude that the scales are tipping towards a cooling of economic activity. Most of the data that shows good growth comes from the very beginning of the year. Others (such as investments) may represent a statistical distortion. At the same time, even in high-stakes conditions, there is no sharp collapse and a hard landing, and most likely there will not be.
The current economy shows a fairly stable willingness to grow, which is facilitated by both budget programs and the general positive attitude of the population and business. Therefore, the rate will decrease, but almost certainly cautiously. The final victory over inflation will remain a priority goal, as no one is afraid of the collapse of the economy.
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