Russian economy stuck between recession and rising prices, Ukraine intel says

The Russian economy is increasingly sliding toward stagflation — a situation in which economic growth nearly stops or turns negative while prices continue to rise, making life more expensive for both citizens and businesses, according to Ukraine’s Foreign Intelligence Service.

“Strict monetary policies by Russia’s central bank have effectively stifled business activity and intensified stagnation, which has now taken on a systemic character,” the intelligence service noted.

In 2025, economic growth in Russia has all but stalled: GDP hovered near zero, and even modest gains were driven almost entirely by the military-industrial sector and raw materials industries, failing to create momentum for the civilian economy.

Investment activity has sharply declined: businesses are holding off on modernization, cutting back on equipment purchases and capital goods, while high interest rates continue to restrict access to financial resources.

“Additional pressure comes from the budgetary side. The state has reduced incentives through tax changes, and in 2025, maintaining high expenditures amid falling revenues has led to a growing deficit,” the report said.

Domestic demand remains the most vulnerable area. Retail trade shows declining business confidence, consumer sentiment is deteriorating, and sales are falling across most product categories.

High inflation combined with weak economic activity means the Russian economy is increasingly trapped in a vicious cycle of stagflation, with the path to recovery becoming ever more difficult.