Russia slashes 2026 growth forecast to 0.4% from 1.3% as sanctions, war pressures weigh on economy

Russia has sharply downgraded its economic outlook for the coming years, cutting its 2026 growth forecast to just 0.4 per cent from a previously projected 1.3 per cent, as the impact of prolonged sanctions and war-related spending continues to strain the $3 trillion economy.

According to Deputy Prime Minister Alexander Novak, who spoke to the Russian business daily Vedomosti, as reported by Reuters, growth projections for 2027 have also been reduced to 1.4 per cent from 2.8 per cent. The economy is now expected to expand by 2.4 per cent only by 2029.

The revised outlook underscores a significant cooling after two years of relatively strong expansion in 2023–24, which analysts largely attribute to heavy state spending linked to the war in Ukraine.

“Economic dynamics are cyclical. After a period of high growth, there is always a correction, often accompanied by structural transformation. This is a normal stage for the economy,” Novak said, adding that Russia continues to operate under “unprecedented pressure from sanctions.”

More from Business

Post-war boom fading

Russia’s recent growth momentum had been supported by defence production and war-related fiscal outlays, which temporarily shielded the economy from the full impact of Western sanctions. However, signs of strain are now becoming clearer.

The economy contracted by 0.3 per cent in the first quarter of this year — its first quarterly decline since early 2023 — as higher taxes, tighter financial conditions and discounted oil exports weighed on activity.

Economists have also pointed to high interest rates and reduced external trade flexibility as additional drags on growth.

Oil price assumptions held steady

In a notable policy signal, Novak said the government has retained its oil price assumption at $59 per barrel for 2026 — a key benchmark used to calculate budget revenues.

The figure is close to Russia’s fiscal “cut-off” price, which determines how much oil income is channelled into the state budget versus the National Wealth Fund, a key sovereign reserve buffer.

The decision comes even as global oil markets have seen volatility linked to escalating tensions in West Asia, where conflict risks have intermittently pushed prices higher.

Novak said a conservative fiscal approach remained essential despite short-term gains from energy exports.

“It is important to continue pursuing a pragmatic and conservative policy. The crisis creates conditions for increased export revenues from oil and gas, as well as several other goods. However, this effect is not long-term,” he noted.

Putin pressures officials as growth slows

The downward revision comes amid increasing political pressure on Russia’s economic leadership to stabilise growth.

President Vladimir Putin has previously instructed officials to restore stronger growth trajectories and criticised parts of the economic administration over slowing momentum.

Last month, Putin publicly rebuked senior officials, urging them to identify new drivers of expansion as the wartime economy shows signs of fatigue.

The government, Novak said, is now focused on returning growth to a “sustainable long-term trajectory” aligned with global averages while meeting national development goals.