Putin Denies Russia Economy Stagnating
By Reuters | 05 Sep, 2025

A Russian central bank report showing two consecutive quarters of shrinking GDP signals a recession to everyone but Vladimir Putin.

President Vladimir Putin denied on Friday that Russia's economy was stagnating, despite a report from the central bank that suggests it is technically in recession.

In a speech to an economic forum in the Pacific port of Vladivostok, Putin defended the central bank's use of very high interest rates, currently at 18%, to tackle inflation - a stance fiercely criticised by business leaders and bankers.

A graph published in a central bank report this week showed Russia's gross domestic product shrank for two consecutive quarters, a standard definition of what economists call a technical recession. 

Sberbank CEO German Gref, one of Russia's most powerful bankers, said on Thursday that the economy was in "technical stagnation", and the central bank needed to slash rates.

Asked whether he agreed with Gref, Putin said: "No. He knows, we are in constant contact with him. He participates in many of our meetings, which are held, including those with me, with the government, and the central bank."

Gref is a long-term associate of Putin and drafted the president's first economic strategy in the early 2000s.

The central bank did not elaborate on its graph showing two quarters of shrinking GDP. The statistical agency estimated GDP contraction at 0.6% in the first quarter on a quarterly basis, but has not yet published data for Q2.

There is no precise definition for the "technical stagnation" referred to by Gref. Russian news agencies were briefed this week that the economy is projected to grow by 1.2% in 2025, a sharp slowdown from 4.3% in 2024.

Growth downgrades and a rising budget deficit form part of a pattern of evidence of the mounting strain on Russia's economy from the 3-1/2 year war in Ukraine. 

INFLATION

"The recession has happened," said economist Evgeny Kogan, commenting on the central bank's graph. He argued that state spending, which stimulated growth in recent years, could not continue without inflation due to capacity constraints. 

Gref said growth in July and August was close to zero. But Andrei Kostin, CEO of Russia's second largest bank VTB, said he did not see a major deterioration of the economy in the second quarter. 

"Life has shown that our economy is quite resilient," he told reporters in Vladivostok. 

Putin linked talk of a stagnating economy to dissatisfaction with high interest rates but said these were needed to tame inflation, adding that Russia's central bank was rated very highly in the international financial community.

The central bank hiked the key rate to 21% last year, the highest level since the early 2000s, to bring inflation down. It cut the key rate to 20% in June and then to 18% in July. The bank makes its next rate decision on September 12. 

Annual consumer price inflation was 8.79% in July, down from 9.40% in June. The central bank expects inflation to slow to its target of 4% in 2026. 

"If inflation overwhelms the economy, nothing good will come of it because it becomes impossible to forecast anything even for 10 days, let alone for years ahead," Putin said, urging the authorities to ensure a soft landing. 

Putin ruled out new tax hikes to balance the budget but said Russia had room to increase its budget deficit because its debt burden remains low.

Russia has a debt-to-GDP level of around 19%, one of the lowest in the world. But with the budget deficit set to exceed the planned 1.7% of GDP in 2025, the debt is set to increase.

(Additional reporting by Olesya Astakhova, Darya Korsunskaya, Oksana Kobzeva, Anastasia Lyrchikova, Maxim Rodionov, Marina Bobrova and Lucy Papachristou; Writing by Gleb Bryanski; Editing by Mark Trevelyan and Gareth Jones)