Russia's economic growth will begin to slow down this year, according to a forecast from Bofit, the Bank of Finland Institute for Emerging Economies.
This year, Russia should see annual growth of around two percent, while about one percent growth is anticipated in 2025 and 2026, according to a central bank press release issued on Monday.
The new forecast noted that the Russian economy fared better last year than forecasters had anticipated.
It added that the economy improved last year, following declines after the country invaded Ukraine in early 2022. This year, however, further growth potential is expected to be limited by capacity constraints, according to the forecast.
"Russia's economy will not only grow more slowly in the years ahead but will also be increasingly driven by the state. Growth in the next few years is limited by Russia’s low long-term growth potential, which has been further reduced since Russia’s invasion of Ukraine," Bofit's senior economist Sinikka Parviainen said in the release.
The forecast said that "soaring public spending" would be the biggest reason behind anticipated future growth, but also noted issues concerning the country's "robust military spending".
"The issue with wartime fixed investment is that it often does little to increase the stock of productive capital or raise productivity. In fact, a significant chunk of wartime investment goods are consumed or destroyed over a short time span," Parviainen stated.
The forecast also said severe labour shortages would make further wage increases "inevitable", prompting private consumption.
However, the bank further noted that there is a good deal of uncertainty in the forecast for Russia, due to the lack of statistical data, among other factors.
"Moreover, a change in the course of the war or blowback from Russia’s current short-sighted economic policies could have profound impacts on future trends in the Russian economy," the bank's release concluded.
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