The EU expects significantly more growth in Russia in 2026 than the government

Author: Klaus Dormann In its budget planning in September 2025, the Russian government still assumed that Russia's economic growth would pick up to 1.3% in 2026. On May 12, however, it announced in a new forecast that growth is likely to weaken further. It is expected to fall from 1.0% in 2025 to just 0.4% in 2026 (Interfax.com). However, the EU Commission expects the opposite trend this year. In the Russia chapter of its "Spring Forecast" published on May 21, the Commission "adopts" the Russian government's previous growth forecast and now expects the increase in gross domestic product to accelerate to 1.3% in 2026. The Commission thus largely agrees with the view of the International Monetary Fund. The IMF already raised its forecast for Russia's economic growth this year from 0.8% to 1.1% in mid-April. In the "Update" of its forecasts for the global economy in Russia published on May 19, the United Nations Economic Department expects similarly strong growth this year (+1.0%). This also applies to the German Council of Economic Experts (+1.2%). EU Commissioner for Economic Affairs Valdis Dombrovskis pointed out that Russia's economy  is benefiting from the rise in energy prices. He once again firmly rejected any easing of sanctions against Russia (more information on this at the end of the article). The EU Commission and the IMF expect Russia's economy to grow by a further 1.1% in 2027. The UN economic department expects 1.2% growth next year and the Russian government expects growth to accelerate to 1.4% in 2027. However, this would only be half as high as the government expected for 2027 six months ago (+2.8%). GDP forecasts for Russia 2024 to 2027Change in real gross domestic product compared to the previous year in percent EU footnote on the credibility of the Russian government's economic data The EU Commission comments on the credibility of official Russian economic data in a footnote in its forecast in the Russia chapter: "Some analysts have argued that the actual situation is worse than the official Russian macroeconomic data portray. Although not all of the economic arguments put forward in this regard are entirely convincing, in the context of Russia's war of aggression, manipulation of the data cannot be completely ruled out as a possibility. However, it is remarkable that even the official data now clearly points to an economic deterioration." How the EU sees the current situation of the Russian economy In the Commission's view, the Russian economy is "now divided into two parts". The "military-industrial complex" continues to be supported by state orders and enjoys access to particularly favorable credit conditions. It is favored over the economic sectors of the "civilian economy". Looking back on developments in 2025, the EU Commission summarizes: Economic growth slowed drastically from 4.9% to 1% in 2025. "The war of aggression against Ukraine increasingly took its toll," says the Commission. Growth weakened in all areas of gross domestic product. Gross fixed capital formation even fell by 0.4% compared to the previous year (2024: +8.6%). The increase in consumption roughly halved. Private consumption still grew by 3.6% (2024: +6.7%), while public consumption rose by 1.1% (2024: +2.2%). In particular, the relatively resilient private consumption was decisive in preventing an even greater slowdown in economic activity in 2025. The persistently tight labor market continued to ensure real wage increases. The average unemployment rate in 2025 was at a historic low of 2.2%. It is only expected to rise to 2.4% in 2027 (see also: Cash.ch; Bloomberg: Labor shortage in Russia worsens due to war and demographics, 23.05.26). Russia's real gross domestic product and its use European Commission: Spring 2026 Economic Forecast; Full Document;with forecast for: Russian Federation; Excerpt; 21.05.26 Forecasts of the EU Commission for 2026 and 2027 The Commission expects Russia's economic growth to accelerate "marginally" from 1.0% to 1.3% in 2026. However, it is likely to lose some momentum again in 2027 and fall to 1.1% (see black line in the following figure). Real gross domestic product and its areas of useGrowth contributions of the areas of use net exports, investments, private consumption, government consumption and changes in inventories in percentage points European Commission: Spring 2026 Economic Forecast; Russian Federation, 21.05.26 According to the EU, growth in private consumption is likely to slow further to around 2% in 2026 and 2027, although "certain positive spillover effects from high export revenues from the oil and gas sector" can be expected. At the same time, investment activity is unlikely to increase significantly and will "continue to act as a drag on growth" in the economy as a whole. The figure above shows that real GDP growth in 2026 and 2027 will be driven almost entirely by private consumption (yellow column sections). What growth impetus will the sharp rise in oil and gas prices provide? According to the Commission, the sharp rise in hydrocarbon prices triggered by the conflict in the Middle East will "support Russian GDP through various channels". Overall, however, it assumes that a large part of the positive effects from these "windfall gains" will be dampened by continuing structural weaknesses in the Russian economy. The Commission expects investments to start growing slowly again in 2026 and 2027 - boosted by improved monetary conditions and the additional income from the hydrocarbon business. However, according to the Commission, the majority of the additional income from higher oil and gas prices is unlikely to be used by companies and the Russian government for investments. They should primarily be used to meet the deficit targets of the federal budget and to reduce the companies' debt. The Commission is forecasting a further slowdown in private consumption growth compared to 2025, as wage growth is likely to slow down despite the oil price boom. Consumer sentiment has also deteriorated. With regard to the quantitative development of Russian exports, the EU Commission expects only a slight increase. Russia's oil production is already close to its capacity limit and is restricted by the quotas agreed by OPEC+. European Commission: Spring 2026 Economic Forecast;Full Document; with forecast for: Russian Federation, 21.05.26 The slowdown in price increases continues slowly With regard to the development of consumer prices, the Commission notes that the decline in the inflation rate observed since March 2025 came to a halt in January 2026 due to the increase in VAT by 2 percentage points. The annual inflation rate rose by 0.4 percentage points to 6% in January. It largely remained at this level in February and March. The following chart from the weekly report of the state development company VEB.RF shows that the annual increase in consumer prices amounted to 5.6% in April. In the week ending May 14, it amounted to 5.5%, as in the previous week, according to the institute's estimate. Inflation development in Russiablack line: change in the consumer price index compared to the same month last yearred line: change in the industrial producer price index compared to the same month last year VEB Institute: World Economy and Markets, 15-21.05.26 According to the Commission, the continuing high level of military spending is likely to exert further upward pressure on prices. However, the Commission believes that the inflationary effects of the current rise in commodity prices will be "largely muted" in Russia due to fuel subsidies. With regard to the central bank's monetary policy, the Commission states that the central bank has so far only "cautiously" lowered its key interest rate due to the ongoing price pressure, which is still leading to high real interest rates. Overall, the EU expects inflation in Russia to continue to fall and average 5.7% in 2026 and 4.8% in 2027. The Russian Ministry of Economy expects the inflation rate to fall to 5.2% by the end of 2026. According to Minister Reshetnikov, this creates "more and more arguments" for a further easing of monetary policy. However, the concrete decision on the pace and scope of interest rate cuts lies with the Central Bank Council, the minister emphasizes (russia.capital.de with video of a statement by Central Bank President Nabiullina on the monetary policy of the Central Bank). Higher commodity prices will reduce the general government deficit in 2026 According to the EU Commission, the development of revenues from the oil and gas sector in the Russian federal budget in 2025 was impacted by low global oil prices, a strong rouble and Western sanctions. Revenue fell by 24% year-on-year. At 2.6% of GDP, Russia recorded the highest deficit in the federal budget since the start of the pandemic. In the first quarter of 2026, revenue from the oil and gas sector fell by as much as 45% year-on-year. However, according to the Commission's assessment, the conflict in the Middle East has fundamentally changed the conditions for the further development of the budget. The following chart from the latest weekly report of the VEB Institute shows that the prices for Brent oil (green line) and Russian Urals oil have risen sharply since the end of February. Urals was recently quoted at 101 dollars/barrel, around twice as high as at the beginning of the year. Prices of Brent and Urals crude oil in $/barrel (right-hand scale)Difference between the Urals price and the Brent price in % (left-hand scale) VEB-Insitut: World Economy and Markets, 22.05.26 According to the EU Commission, the sharp rise in global hydrocarbon prices makes the government's planned revenue growth in the budget for 2026 feasible. In contrast, the Commission considers the expenditure estimated in the budget to be "unrealistically low" against the backdrop of the ongoing war in Ukraine. The Commission assumes that the deficit in Russia's overall public budget will fall from 3.2% of GDP in 2025 to 2.6% of GDP in 2026 (before rising again to 2.8% of GDP in 2027). The general government debt ratio, which rose to 17.5% of GDP in 2025, is expected to increase further to 18.9% and 21.2% of GDP respectively over the next two years, according to the Commission's estimates. The risks to Russia's economic outlook remain considerable The EU Commission initially cites further Ukrainian attacks on Russia's hydrocarbon extraction and processing facilities as a "downside risk" for the development of the Russian economy (Tagesschau, FR.de; t-online). Another risk is the indebtedness of Russian companies. It has risen considerably in recent years due to high interest rates and stricter sanctions. Loan defaults could have a negative impact on economic growth. Moreover, if inflation persists more persistently than expected, renewed monetary tightening measures would further dampen growth. According to the Commission, the most important "upside risk" for Russian economic growth is the further course of the conflict in the Middle East. If it lasts longer than expected or has a more far-reaching impact on the energy infrastructure in the Middle East, this will lead to additional benefits for the Russian economy. EU Commissioner Dombrovskis rejects easing of Russia sanctions Towards the end of his press conference on the EU spring forecast, Latvian EU Commissioner Valdis Dombrovskis emphasized that at a recent meeting of G7 finance ministers, it was reiterated that now is not the right time to lift sanctions against Russia because Russia is profiting from the Iran war and making significant profits (YouTube video, minute 46:59 and rev.com transcript). In an interview with Euronews, Dombrovskis commented in detail on the EU's sanctions policy towards Russia (article with video, min. 4:30 to 8). He explained that the EU should not alleviate the current energy crisis with cheap fossil fuels from Russia. "On the contrary, we need to tighten sanctions against Russia, not loosen them," Dombrovskis said on the Euronews program "Europe Today". "Russia is benefiting from the conflict in the Middle East and the rise in energy prices, it is making considerable additional profits. We should not make this any easier." When asked whether the EU could lift some of its sanctions against Russian oil and gas in view of the high energy bills for consumers, Dombrovskis ruled this out. He said there was a "strategic decision" to move further away from Moscow. "We have already seen in 2022 that Russia has used its fossil energy supplies as a means of pressure and manipulation," he said. "We have paid a high economic price for this dependence on Russia. There is no reason to go back to that situation." The UK, on the other hand, has eased sanctions against Russia. The government decided that diesel and aviation fuel may continue to be imported if they were produced in third countries from Russian crude oil (Frankfurter Rundschau). Reading tips: EU forecast and EU sanctions policy towards Russia Euronews; Europe Today; Adrian Leal: EU Economic Affairs Commissioner Dombrovskis rules out easing Russia sanctions, with video interview, 22.05.26 Reuters LIVE Video: EU Economic Commissioner presents economic forecasts, with statement on Russia sanctions policy; 21.05.26 Finmarket.ru: The European Commission has revised upwards its forecast for Russian GDP growth this year, 21.05.26 European Commission: Spring 2026 Economic Forecast; Full Document; with forecast for: Russian Federation, 21.05.26 UN forecast United Nations: World Economic Situation and Prospects 2026 May Update, 19.05.26 Forecast of the Russian government and economic policy as a whole russia.capital: Reshetnikov calls for leeway for lower interest rates and more efficiency in the economy, 20.05.26 Reedus.ru; Olga Zheleznova: Reshetnikov named important measures to accelerate Russian economic growth, 18.05.26 RBC interview with Economy Minister Reshetnikov; Yevgeny Kalyukov, Petr Kanaev: Interview of Maxim Reshetnikov with RBC. Key statements;18.05.26; Monocle.ru+; Alexey Dolzhenkov: Economic growth postponed until 2027, 18.05.26 Vedomosti.ru; Anna Milkina: Is the Russian economy facing a recession? Rising wages and higher government spending on the military-industrial complex and defense are no longer the drivers of GDP growth. Analysts examine these issues.15.05.26 News Chronicle.ru: Rosstat reported a 0.2% decline in Russia’s GDP in the first quarter of 2026, 15.05.26 German-Russian Chamber of Commerce Abroad: Infographics: The Ministry of Economic Development has revised its GDP forecast downwards, 14.05.26 mec-analytics.ru; Igor Safonov: The forecast for the socio-economic development of the Russian Federation for the period 2027-2029 has been published; 14.05.26 newstek.fm: Inflation and GDP forecasts for Russia in 2026 have been revised, 12.05.26 Monetary policy and inflation Moscow Region Today; mosregtoday.ru: The Central Bank's hands are tied: Scientists have found a way to prevent a rise in the key interest rate, 22.05.26 Frank Media; Mikhail Maseyev: Within a month, the second research center has already proposed a change in the Central Bank's powers. The Russian Academy of Sciences believes that the Central Bank should sometimes wait until the government has fought inflation. 21.05.26 Institute of Economic Forecasting of the Russian Academy of Sciences; INP RAS: "Monetary and fiscal policy in Russia: peculiarities of interaction", 21.05.26 russia.capital: Reshetnikov calls for leeway for lower interest rates and more efficiency in the economy, with video statement by Central Bank President Nabiullina; 20.05.26 Foreign trade: Sanctions and the rouble exchange rate Alfa Bank; Arseniy Anatolyev: The ruble exchange rate has peaked, 22.05.26 wallstreetONLINE; Ingo Kolf: Revenues are gushing. Russia profits massively: The secret winner of the Middle East war, 21.05.26 Frankfurter Rundschau; Marcel Reich: Putin's oil via detours: Why London is giving in on the Russia sanctions, 21.05.26 BANKNN:RU: The dollar exchange rate fell below 70 rubles for the first time since 2023, 21.05.26. Inosmi.ru: The ruble has appreciated against the dollar more than ever before: What's behind this? BZ: Reliable mechanisms of the Central Bank of Russia contributed to the strengthening of the ruble. 20.05.26;  Original article: Berliner Zeitung, Liudmila Kotlyarova: Ruble gains most against dollar worldwide: What's behind it? The rouble lost much of its value after the start of the Iran war. Now, according to Bloomberg, it is the world's biggest gainer against the US dollar. How is this possible? 19.05.26 Inosmi.ru: The rouble is outperforming all other currencies: Russia benefits from Iran oil boom: Bloomberg original article;05/19/2016 Alfa Bank, Arseniy Anatolyev: The Ministry of Finance's currency purchases failed to stop the appreciation of the exchange rate, 15.05.26 Economic development in Russia as a whole Maeil Business: Trade surplus jumps 175% in March. Market outlook optimistic despite Russia’s reverse growth, 23.05.26 Business Insider; Huileng Tan: Despite oil revenues from Iran war: why Putin's war economy is hard to save, 22.05.26; Article on: Nigel Gould-Davies, Senior Fellow International Institute for Strategic Studies: The Coming Crisis in Russia's Political Economy, 19.05.26 BankNNRU: Russian retail sector faces its biggest crisis in 20 years, 22.05.26 russia.capital: Reshetnikov calls for leeway for lower interest rates and more efficiency in the economy, 20.05.26 Reedus.ru; Olga Zheleznova: Reshetnikov named important measures to accelerate Russian economic growth, 18.05.26 MK.ru; Dmitry Dokuchaev: Why low inflation is no reason to celebrate: analyst Goykhman explains. Inflation falls as GDP declines: what is happening to the economy? 17.05.26 Merkur.de; Richard Strobl: Russia's economic bluff is being blown: Putin brags - but even his own ministry contradicts, 17.05.26 Vedomosti.ru; Anna Milkina: Is the Russian economy facing a recession? Rising wages and higher government spending on the military-industrial complex and defense are no longer the drivers of GDP growth. Analysts examine these issues, 15.05.26 The post The EU expects significantly more growth in Russia in 2026 than the government appeared first on ostwirtschaft.de.