Introduction to Russia’s Economy
Western observers have been confused about the true state of Russia’s economy for more than three years. Sometimes it seemed to strap under the strain on the sanctions – others showed unexpected strength. In 2023, Russia’s gross domestic product (GDP) increased by 4.1% and 4.3% in 2024.
Growth Expectations
The impulse, which is largely driven by the relocation to a war economy, now seems to fade. Many economists expect Russia’s growth to be reduced in half and that only 2% falls. For example, the German Kiel Institute for the World Economy GDP is projecting growth of only 1.5% for 2025 and only 0.8% for 2026. Even the Russian central bank expects a slowdown, and adhered to its lower forecast of 1% and 2% for 2025 and 0.5% to 1.5% next year.
Challenging Conditions
A large drag is the exorbitant high interest rate in Russia, currently 21%, which deviates private investments. The sectors for the auto industry and mechanical engineering are particularly hard hit, followed by construction and steel. At the same time, the approximately 40% of the profit of the Russian currency ruble compared to the US dollar has surprised many analysts since the beginning of the year.
War Economy Faces Challenges
The Russia’s war economy faces challenging conditions, with high interest rates and a decline in private investments. The Russian currency, ruble, has appreciated by 40% compared to the US dollar, which has surprised many analysts. However, this appreciation is largely a reaction to the conciliatory attitude of US President Donald Trump towards Russia.
Impact of Sanctions
In November 2024, the US sanctions against Gazprombank, a large Russian state-owned energy giant, were imposed, with the exception of the US financial system. The move frozen its US assets and cut off business with American companies. While the European Union had freed the Gazprombank from the sanctions by the end of 2024 to enable persistent payments for Russian gas, the US parade had an immediate effect.
New Sanctions Laws
The US Senate prepares new sanctions laws, with Senator Lindsey Graham reacting to Trump’s statements with a proposal to expand sanctions against Russian energy products. The legislative template would impose secondary sanctions to countries that buy Russian oil, gas, uranium, or other products. According to experts, China and India could be primarily targeted by these new sanctions.
Payment Channels
Russia’s payment channels are under threat from the closure, with Chinese and Turkish banks under strong pressure from the US. However, the Trump administration changed politics by dissolving the department within the Ministry of Finance, which is responsible for the organization of the Russian oligarch and "massively facilitating" the enforcement of secondary sanctions.
Secondary Sanctions
Secondary sanctions were strictly enforced and violations were punished. Experts note that Chinese and Turkish banks that accepted payments from Russia are under strong pressure from the US. However, some Russian banks have set up a Netting payment system, which is called "China Track" for transactions with China, to "reduce their visibility to Western supervisory authorities and to alleviate the risk of secondary sanctions".
Conclusion
It is currently "difficult to predict" how deeply new secondary sanctions would influence the business partners of Russia as part of a second Trump government. One reason for this is that large Russian banks have set up a Netting payment system for transactions with China, which could reduce the risk of secondary sanctions.
