Forecast of lower growth for Russia, Ukraine as war keeps rates high

DPA

Tue, Jul 1, 2025, 3:45 AM 1 min read

The economic outlook for the warring nations Russia and Ukraine is continuing to deteriorate, according to a new forecast from the Vienna Institute for International Economic Studies (wiiw).

This year growth in Russia is expected to halve to 2% compared to the previous year, the wiiw announced. For 2026, Moscow can only expect an increase of 1.8%.

The main reason for the decline is said to be the monetary policy "hard stop" implemented by the Russian central bank to get inflation under control.

The high interest rates of 20% are stifling the economy, as loans become unaffordable and many citizens leave their money in the bank, said wiiw Russia expert Vasily Astrov.

"Not surprisingly, a wave of bankruptcies is also threatening businesses, which could partially include large corporations and key enterprises," he added.

Problems for Kiev: Destruction and poor harvest

The outlook for Ukraine, the country Russia attacked in a full-scale invasion more than three years ago, is no better.

The destruction of critical infrastructure caused by Russian attacks is leaving increasingly deep scars, according to the think tank's Ukraine expert, Olga Pindyuk.

"The worsening labour shortage due to mobilization for the war is also weighing heavily on the economy," she said.

Additionally, the effects of a poor harvest expected due to drought and the temporary end of tariff relief for agricultural exports to the European Union are compounding the situation.

For 2025, the institute revised growth down by 0.5 percentage points to 2.5% compared to its spring forecast. Inflation in the country stands at 16%, with correspondingly high key interest rates.