• Russia's economy grew by 1% in 2025, a slowdown President Vladimir Putin described as intentional to curb inflation.
  • Inflation is expected to end the year at or below 6%, with unemployment hitting a record low of 2.2% and real wages up 4.5%.
  • Putin ordered immediate structural reforms and tax hikes, including a VAT increase from 20% to 22%, to fund defense and social programs amid ongoing war pressures.

Russia's economy achieved a 1% GDP growth in 2025, according to President Vladimir Putin, who framed the deceleration as a deliberate strategy to rein in inflation, which he projected would close the year at or below 6%. The remarks, made during a December 8 meeting of the Council for Strategic Development and National Projects and reiterated at his annual press conference on December 19, highlight a shift from the high growth of prior years to a planned "soft landing." Putin emphasized that despite external pressures, the economy met its targets, with cumulative GDP growth over three years reaching 9.7%—outpacing Europe's 3.1%—and a budget deficit of 2.6% of GDP.

Efforts to restructure the economy have hit a snag, however, as labor productivity grew modestly at 1.1%, signaling underlying challenges. Putin's call for immediate reforms includes higher taxes, such as the VAT hike, aimed at raising approximately $12.3 billion to support defense spending and social initiatives. Without these measures, analysts warn, the country could face stagnation, especially if the war in Ukraine persists. According to people familiar with the matter, the government is prioritizing "whitening" the shadow economy and boosting regional growth, while avoiding price controls except for essentials like medicines.

In a more conversational tone, one might note that Russia's economy is navigating a tightrope: balancing war-related expenditures with inflation control. Putin described this as a "conscious cooling" for long-term stability, part of a sustainable war economy strategy. The Q3 2025 GDP stood at 0.6% year-on-year, down from earlier quarters, reflecting the impact of high interest rates designed to mitigate overheating. Despite sanctions from the West, Russia has maintained low debt-to-GDP at around 17.7%, showcasing resilience, but experts like those at SpecialEurasia project higher inflation of 6.5-7.2% and persistent deficits.

Human touches emerge from the societal impact: low unemployment benefits workers, yet labor shortages indicate a looming crisis. Real wage gains offer some relief to households, but tax increases may burden consumers. Public reactions, as reported in state media, focus on achievement of targets, though analysts caution about risks. Putin predicts gradual dynamics with low unemployment moving forward, targeting a budget deficit reduction to 1.6% of GDP in 2026 and inflation at 4-5%. The outlook remains uncertain, with projections adjusted from the Kremlin's 1% to a more conservative 0.6-0.9% by some observers.

Correction: An earlier version of this article misstated the timing of Putin's remarks; they were made in December 2025, not earlier in the year.