Russia’s economic indicators are increasingly signaling a slide toward stagflation. The tight monetary policy of the Russian central bank has effectively choked business activity and intensified stagnation processes that have already taken on a systemic character.
In 2025, economic growth nearly came to a halt: GDP hovered around zero (–0.3% in Q1, 0% in Q2, +0.1% in Q3). Even the slight mid-year uptick was confined to the military-industrial complex and certain segments of raw-material industries and generated no momentum for the civilian economy. After a brief rise early in the year, investment activity declined sharply: in Q2 and Q3, investment in fixed capital fell by 3.7% and 1.7% respectively. Businesses abandoned modernization plans, cut purchases of equipment and investment goods, and the shortage of financial resources is likely to persist even if monetary policy is eased.
Additional pressure comes from the fiscal sphere. The state reduced incentives through tax changes, and in 2025 the combination of high spending and falling revenues led to a growing deficit. In 2026–2028, fiscal policy will become a restraining factor due to spending cuts and higher tax burdens, locking in an inertial scenario of prolonged stagnation with elevated stagflation risks.
Domestic demand remains the most vulnerable area. The business confidence index in retail trade stayed in negative territory throughout 2025 and fell to –6 in Q4, the worst level since 2022. Against this backdrop, 44% of retailers expect profits and profitability to decline in 2026, while only 29% anticipate sales growth—the lowest figure in a decade.
Consumer sentiment is deteriorating rapidly. Since June 2025, sales have fallen across most product categories, and during the 2026 New Year holidays foot traffic in shopping malls dropped by nearly 20% year on year. High interest rates have sharply increased costs and borrowing expenses for small and medium-sized businesses, restricting financing for working capital.
Russia’s retail sector shows weak adaptability and structural fragility. Business pessimism, expectations of declining profitability, and cuts in investment are increasingly turning into a self-reinforcing driver of economic downturn.
