Düsseldorf, 25 April 2025
- Swedish experts warn that Russia’s official growth and inflation data mask severe fragilities and growing risks in its war economy.
- Russia’s own National Bank reports confirm shrinking export revenues, growing dependence on Asia, and a dramatic decline in hard-currency reserves.
- Military spending crowds out welfare, debt mounts, and hidden “war debts” threaten systemic financial stability.
- EU remains Russia’s biggest gas customer—despite sanctions—undermining Western economic pressure.
- Structural vulnerabilities, not resilience, define Russia’s economic outlook for 2025.
Introduction
Amid ongoing conflict and ever-tightening Western sanctions, Russia’s government claims continued growth and economic resilience. Yet a close examination of independent European research and Russia’s own macroeconomic disclosures reveals a starkly different picture: that of a war-driven, increasingly opaque, and fundamentally fragile economy. This analysis, led by the Swedish SITE report for the Ministry of Finance, juxtaposes official Russian and Western findings for Q1 2025 to expose the truth behind the Kremlin’s economic messaging.
Swedish SITE Report: Main Findings
The Illusion of Resilience—Statistical Opacity and Economic Narratives
Russia’s official macroeconomic indicators suggest modest real GDP growth (~4% in 2024) and “manageable” inflation (9–10%), with the Central Bank’s policy rate at 21%. However, independent estimates indicate actual inflation is closer to 20%, suggesting that official growth data are overstated. This distortion serves to bolster domestic claims of resilience and undermine the perceived impact of sanctions, while concealing mounting vulnerabilities and long-term risks.
War-Driven Growth and Its Limits
Much of the reported economic activity is fueled by massive fiscal stimulus directed to military and defense sectors. Military expenditures have crowded out social spending, with oil and gas revenues still critical, but falling as a share of the budget. The authorities have raided sovereign reserves (National Wealth Fund), increased domestic borrowing, and imposed new taxes to sustain spending. The liquid portion of the NWF is now below 3% of GDP, dramatically limiting Russia’s future fiscal flexibility.
Shifting Export Patterns, Sanctions Leakage, and EU Dependence
While Russia has increased oil and gas sales to Asia (Asia now absorbs 76% of exports), the EU remains its largest gas and LNG buyer, with France, Belgium, Hungary, and Slovakia especially reliant. Sanctions have cut into seaborne crude exports and forced deeper discounts (Urals crude $13/barrel below Brent), but pipeline gas and LNG exports to Europe persist due to policy gaps, especially in Germany.
Hidden War Debt and the Military-Industrial Complex
Off-budget financing through state-directed bank lending to military enterprises has surged. These opaque, government-guaranteed loans are a “hidden war debt,” doubling the real cost of military expenditures and increasing risks of a banking crisis. Non-military sectors are suffering: high rates, shifting policies, and falling demand have hit construction and consumer industries. Meanwhile, the war economy’s dependence on imported (often sanctioned) technology remains a critical weakness.
Growing Risks and Unsustainable Stimulus
SITE concludes that Russia’s superficial stability masks a system under mounting stress. Depleted reserves, shrinking external financing, and growing banking sector risks threaten medium-term stability. Russia’s $2 trillion GDP remains dwarfed by the EU’s $18.6 trillion—“time is not on Russia’s side.” Western support for Ukraine remains an issue of political will, not resources. SITE warns that absent a war’s end or major policy shift, Russia faces the rising risk of systemic financial instability.
Read the Swedish SITE Report
Russian Central Bank Q1 2025 report confirms negative trends
The National Bank Rossiya reports confirm shrinking export revenues, growing dependence on Asia, and a dramatic decline in hard-currency reserves.
Shrinking Surpluses and Exports
- Russia’s current account surplus fell to $20bn in Q1 2025 (down from $24bn Q1 2024), due to falling trade surpluses and higher deficits on income accounts.
- Export values dropped 4% YoY, mainly from lower oil/coal prices, voluntary OPEC+ oil cuts, and the end of Ukrainian gas transit to the EU.
- Export to Europe fell to 15% of the total, Asia’s share rose to 76%, Africa to 6%.
- Urals crude now trades at a 17% discount to Brent ($63/barrel vs. $76 Brent average).
- LNG and pipeline gas exports to the EU remained steady, with record increases in exports to China via the Power of Siberia pipeline.
Import Patterns and Demand
- Imports fell by 3% YoY, mostly in machinery and transport, partly due to reduced demand and higher interest rates, but offset by stronger demand from other regions and persistent “parallel imports.”
- Import sources shifted: Europe’s share dropped to 24%, Asia’s rose to 69%.
Balance of Payments and Reserves
- Capital outflows remain significant, with increases in foreign assets exceeding new liabilities.
- Reserve assets declined by $6bn in Q1 2025; sovereign wealth is increasingly illiquid, with gold reserves down by two-thirds since 2023.
- Financial sanctions and Western restrictions further complicate logistics, payments, and market access.
Sanctions Impact
- New U.S. and EU sanctions in early 2025, targeting shipping, metals, and banking, increased freight rates for Russian oil and restricted export logistics.
- Russian export revenue is further pressured by forced discounts and logistical challenges.
Read the Russian report
Synthesis: “Fake” Stability and Real Fragility
The Russian government’s narrative of a strong, resilient economy is increasingly at odds with both external analysis and internal data. Growth is overstated, inflation underreported, and the war economy’s sustainability is dubious—driven by “hidden” debt, dwindling reserves, and sectoral imbalances. Even as Russia turns to Asia for trade, the EU remains its critical customer for gas and LNG, undercutting Western sanction efforts.
Banking and fiscal risks are growing, with SITE and the CBR both warning of the depletion of liquid assets and limited investor appetite for further domestic borrowing. The underlying message: The Russian war economy is surviving, not thriving. Structural vulnerabilities are mounting, with resilience largely a statistical illusion and time working against the Kremlin unless the war ends or sanctions ease.Further information
E-Analysis by ChatGPT, prompted and edited by Insight EU