Monday

31-03-2025 Vol 19

Bank of Finland: Russian Economy Experiences Slowing Growth Amid Ongoing Conflict

The Bank of Finland has released a report indicating that Russia’s economic growth is expected to decelerate this year as well as in 2026 and 2027. However, the report suggests that a severe economic crisis is unlikely, despite the ongoing risks associated with the war in Ukraine. Russia’s economy has shown resilience and robust growth following a contraction in 2022, largely driven by increased government spending, military production, and the export of oil, gas, and minerals. This unexpected performance has allowed the economy to withstand the impact of Western sanctions better than anticipated by both Moscow and Western analysts.

According to the Bank of Finland’s Institute for Emerging Economies (BOFIT), Russia’s gross domestic product (GDP) is projected to grow by approximately 2% this year, a decrease from an estimated 4.1% growth in 2024. The Russian central bank has forecasted similar declines, predicting growth rates of 1-2% in 2025, while the government expects a slightly higher growth of 2.5% for that year. For 2026 and 2027, growth is expected to further slow to around 1%, primarily due to acute labor shortages and increasing inflation. While the war has negatively impacted Russia’s long-term growth prospects, the country possesses enough economic resources to maintain its military efforts, according to the study.

BOFIT Senior Economist Heli Simola emphasized that, regardless of the human costs incurred, the continuation of the war in Ukraine remains Russia’s foremost objective. Finally, the report indicates that the immediate economic effects of a ceasefire in Ukraine are likely to be limited, as long as uncertainty surrounding the conflict persists.

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