Russia’s central bank has reduced its economic growth forecast for 2026 and raised its inflation outlook, presenting a weaker picture of the country’s economy as policymakers confront slowing activity, elevated consumer prices and uncertainty surrounding government spending.
In a revised medium-term forecast released after its July monetary policy meeting, the Bank of Russia said gross domestic product would expand by between 0.0% and 1.0% in 2026. The previous forecast, published in April, had projected growth of 0.5%–1.5%.
The lower end of the new range allows for no annual growth, highlighting the risk that Russia’s economy could remain broadly stagnant after the rapid expansion recorded in 2023 and 2024. Official data show that growth had already slowed to 1.0% in 2025.
The central bank also reduced its estimate for growth measured from the fourth quarter of 2025 to the fourth quarter of 2026. That range now stands at 0.0%–1.5%, compared with the previous projection of 1.0%–2.0%.
The forecast change came as the regulator cut its key interest rate by 25 basis points, from 14.25% to 14.0% annually. The reduction was smaller than many of the earlier cuts in Russia’s current easing cycle and reflected the bank’s concern that inflation risks remain stronger than the risks of an excessive fall in prices or demand.
The Bank of Russia increased its forecast for year-end inflation to 6.0%–7.0%. Its April forecast had placed inflation at 4.5%–5.5% by December. Average inflation across 2026 is now expected to be between 5.9% and 6.2%.
Annual inflation was measured at 5.9% on July 20, already close to the lower boundary of the revised year-end forecast. The regulator said consumer price growth had accelerated in June and July, particularly because of movements in motor-fuel prices and the prices of fruit and vegetables.
Seasonally adjusted price growth averaged an annualised 5.0% during the second quarter, down from 8.7% in the first quarter but above the 4.3% rate recorded in the final quarter of 2025. Core inflation slowed more clearly, averaging 4.2% in the second quarter compared with 6.2% during the first three months of the year.
The central bank continues to assess underlying inflation at approximately 4%–5%, but it warned that visible increases in fuel prices had pushed up inflation expectations among households and companies. Those expectations are important because consumers may accelerate purchases when they anticipate further price rises, while businesses may increase prices or wage offers to protect themselves against expected future costs.
Governor Elvira Nabiullina said the bank considered the recent acceleration in prices to be largely temporary. However, she acknowledged that fuel costs were beginning to affect a wider range of goods and services, creating the possibility of second-round inflationary effects.
Petrol represents a regular household expense and an important input cost for businesses involved in production, agriculture, logistics and retail distribution. A prolonged fuel-price increase can therefore spread through supply chains even when the original disruption is concentrated in the energy sector.
International reporting has linked the latest fuel-market pressure to Ukrainian attacks on Russian oil-refining facilities and the resulting disruption to domestic supplies. The central bank described the issue more broadly as a temporary decline in production capacity in certain sectors and assumed in its baseline forecast that companies would restore those capacities before the end of 2026.
That assumption is central to the forecast. If the affected capacity returns as expected, fuel and production pressures may ease, allowing inflation expectations to decline. If disruption persists for longer, companies could pass higher energy, transport and replacement costs on to consumers, requiring interest rates to remain elevated.
The regulator said pro-inflationary risks continue to outweigh disinflationary risks over the medium term. It identified potential second-round effects from supply constraints, wage growth exceeding productivity, elevated inflation expectations, geopolitical tensions and stronger global price pressures as major concerns.
At the same time, the central bank recognised that weaker confidence could reduce consumption and investment more sharply than forecast. A substantial slowdown in domestic demand would restrain price growth, but it would also deepen the loss of economic momentum.
The revised GDP projection reflects that tension between supply limitations and softening demand. According to the central bank, Russia’s economy returned to moderate growth in the second quarter after contracting during the first quarter, when activity was affected by calendar and weather factors.
Consumer spending remained the main contributor to second-quarter growth. Household consumption accelerated somewhat, partly because purchases delayed at the beginning of the year were completed later. Investment activity recovered but remained moderate.
Business expectations have since weakened. Companies reported significantly lower expectations for future demand and output, which the central bank said could indicate slower consumption growth during the second half of 2026.
Monthly estimates published by Russia’s Economic Development Ministry also point to an uneven start to the year. GDP was reported to have fallen by 1.7% year on year in January and 1.0% in February, before increasing by 1.9% in March, 1.3% in April and 0.3% in May. Across the first five months of 2026, estimated growth was only 0.2%.
The government had already lowered its own full-year growth forecast in May, cutting it to 0.4% from the 1.3% projection issued in September 2025. The government estimate is close to the middle of the central bank’s new range.
Economists participating in the Bank of Russia’s July macroeconomic survey produced a median 2026 growth forecast of 0.6%, down slightly from 0.7% in the previous survey. Their median inflation projection rose more substantially, from 5.3% to 6.2%.
The combination of near-stagnant growth and inflation well above the 4% target limits the central bank’s ability to reduce borrowing costs quickly. Lower rates could support corporate investment, housing purchases and consumer credit, but they could also strengthen demand before production capacity and labour supply are able to respond.
The bank’s average key-rate forecast for 2026 is now 14.5%–14.6%. Because the key rate averaged approximately 15.0% from the beginning of the year to July 26, the forecast implies an average rate of 13.7%–14.0% from July 27 through the end of December.
That path leaves little room for rapid easing. The bank removed any clear commitment to consecutive rate cuts and said future decisions would depend on inflation, inflation expectations and risks arising from domestic and external conditions.
The high rate has become a growing source of tension between monetary policymakers and parts of Russia’s business community. Companies reliant on bank financing face significant costs when refinancing debt, funding inventories or investing in new equipment. Business representatives have warned that prolonged borrowing costs at current levels could increase corporate failures.
The central bank’s challenge is that easing policy to address those concerns could undermine progress on inflation. Although the headline rate remains far below the levels seen during earlier stages of the monetary tightening cycle, it continues to exceed the bank’s target and has recently been driven higher by visible prices that strongly influence public expectations.
Fiscal policy is another major uncertainty. The central bank said government expenditure was running considerably above levels seen in previous years and that the structural budget deficit was likely to be larger than previously assumed.
The regulator’s July baseline scenario assumes that Russia’s structural primary deficit will decline gradually and reach zero in 2029. Earlier assumptions had anticipated a faster return to balance. The central bank said the primary structural deficit was now likely to persist through 2028.
A larger deficit supports economic demand because government expenditure provides income to companies, workers and households. However, when the economy is already operating close to available labour and industrial capacity, additional spending can intensify price pressures instead of generating a proportionate increase in output.
The central bank warned that a more expansionary fiscal trajectory could require monetary policy to remain tighter. Government budget plans for the next three years are expected to provide greater clarity, and the regulator plans to incorporate the new parameters into its October forecast after the proposals are submitted to the State Duma.
Russia’s labour market remains unusually tight despite the economic slowdown. Unemployment is near record lows, and companies continue to report difficulties filling some positions. The central bank said labour-market pressure had started to ease gradually and that staffing levels had increased, particularly in sectors where workers can move more readily between employers or regions.
Wage growth has also slowed but continues to exceed productivity growth. When wages rise faster than the amount of goods and services produced per worker, labour costs per unit of output increase, encouraging companies to raise prices or accept lower profit margins.
The central bank expects the gradual easing of labour shortages to help reduce inflation. Private economists surveyed by the bank forecast unemployment averaging 2.2% in 2026 before rising to 2.5% in 2027. They expect nominal wages to grow by 10.2% this year, producing estimated real-wage growth of 4.1% after inflation.
The detailed central-bank forecast shows that the weakness is expected to be concentrated particularly in investment. Gross capital formation is projected to fall by between 1.5% and 3.5% in 2026. Gross fixed-capital formation, which covers longer-term spending on buildings, infrastructure, machinery and equipment, is expected to change by between a decline of 1.5% and growth of 0.5%.
Final consumption expenditure is forecast to rise by 1.5%–2.5%, with household consumption growing at the same rate. This suggests consumer demand may continue to prevent an outright contraction even as investment makes a negative or minimal contribution.
Exports are projected to grow by 0%–2% in volume terms, while imports are expected to increase by 1%–3%. The central bank said the second-quarter trade balance had been weaker than expected because exports were lower and imports higher, partly reflecting the effect of a stronger rouble.
The balance-of-payments forecast places Russia’s 2026 current-account surplus at $48 billion, supported by a projected $119 billion goods surplus. However, the current-account surplus is expected to decline to $25 billion in 2027, $15 billion in 2028 and $10 billion in 2029.
The assumed Russian oil price used for tax purposes is $60 a barrel in 2026 and $50 a barrel in each of the following three years. Nabiullina said the central bank had reduced its crude-price assumptions by $5 a barrel across the forecast period, although Russia’s fiscal rule is intended to limit the direct economic impact of short-term price fluctuations.
Energy income remains important to Russia’s public finances and external accounts, even after Moscow redirected substantial volumes of oil exports following European restrictions imposed over the invasion of Ukraine. Lower export prices, discounts on Russian crude, logistical costs and sanctions enforcement can all affect the revenue available to the federal budget.
Russia’s economy proved more resilient than many initial forecasts after the full-scale invasion in 2022. Continued oil exports, expanded state expenditure and military procurement supported industrial output, employment and household income. GDP grew by more than 4% annually in both 2023 and 2024.
That expansion also created imbalances. Labour shortages, rapid wage growth, high public expenditure and strong domestic demand pushed the economy against its productive limits. The central bank raised the key rate to 21% before beginning an easing cycle in June 2025.
As the immediate impact of fiscal and military stimulus has weakened, growth has slowed sharply. The latest forecast indicates that the economy may now be entering a period in which tight monetary policy, weaker investment and production constraints limit expansion, while fiscal spending and supply disruptions prevent inflation from returning quickly to target.
The bank nevertheless maintained its forecast of 1.5%–2.5% annual GDP growth for 2027, 2028 and 2029. Inflation is expected to fall to 4% in 2027 and remain at the target in subsequent years.
That medium-term outcome depends on several favourable assumptions: production capacity must be restored, inflation expectations must decline, wage growth must become more consistent with productivity, and government borrowing and spending must move towards a more balanced structural position.
The central bank’s next scheduled interest-rate meeting is on September 11. Before then, policymakers will assess whether the fuel-price shock is fading, whether companies are continuing to lower their demand and output expectations, and whether the government’s emerging budget plans are compatible with a steady decline in inflation.
For the Russian economy, the July forecast marks a clear shift from managing an overheated expansion to managing stagnation risks without abandoning price stability. The decision to lower rates by only a quarter of a percentage point, despite a growth forecast that now includes zero, shows that inflation remains the dominant constraint on policy.
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