Bloomberg's reported 2025 Russian government budget will cause recession, economist warns

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Russia’s government budget for 2025 includes a planned 27% increase in military spending compared to 2024 (up to 13.2 trillion rubles, or $142 billion), as per a recent Bloomberg report citing draft budget proposals seen by the publication.

According to the draft, another area expecting a substantial rise in spending is national security.

At a government meeting on Sept. 24, Russian officials announced projected revenue growth from oil and gas payments and outlined the priorities for the upcoming year’s budget: social support, defense spending, and ensuring “security, technological leadership, and infrastructure expansion.”

Tatiana Mikhailova, a visiting assistant professor of economics at Penn State University, told The Insider that the increase in military spending indicates that the Kremlin doesn’t intend to end its invasion of Ukraine in 2025:

“As I understand it, initial budget drafts are always drawn up with the assumption that the war will end. Adjusting defense spending indicates they plan to continue fighting next year. So, the budget has simply been adjusted to reflect this fact. Initially, there was talk that the war would gradually wind down, and expenses would decrease. But since that won't happen, the 2025 budget will essentially be a repeat of 2024.

Reports from ministers clearly state that spending on healthcare will remain at the same level where it has been frozen for several years. Education spending also won't increase. In social welfare (specifically pensions), growth is planned, but it won't cover inflation. You can say that a piece of good news for [Russia’s] citizens is that spending on internal security will also rise, though it will still be below the inflation rate, which stands at around 12%.

Therefore, we see that spending on internal security and social support for the citizenry will, at best, be indexed. In areas that are not prioritized — namely healthcare and education — funding will effectively decrease in real terms. Everything else is directed towards the war — towards ‘national defense.’ Despite constant talk of supporting families and demographics, apart from occasional regional initiatives resembling programs like the ‘maternity capital’ scheme, there’s nothing but tough rhetoric and a lot of hysteria.

The budget deficit, with the planned expenditures, is entirely dependent on oil prices. Oil revenues fill more than half of the Russian budget. It’s unlikely we’ll see a surge in energy prices like at the start of the war. The situation in the Middle East doesn't significantly impact them either, so no surprises are expected there. However, whether this will continue remains uncertain.”

Evgeny Nadorshin, an economist from the consulting firm PF Capital, questioned whether military spending was the only area that will see an increase:

“There are expenses related to debt servicing and other obligations, such as subsidized lending programs for individuals and businesses, where budget spending next year is bound to increase. Interest rates have been raised, subsidies have grown, and the scale of these loans has expanded. Pensions also need to be indexed to inflation by law, so they will rise too. From 2025, they promised to index pensions for working pensioners, as the Prime Minister [Mikhail Mishustin] confirmed in his speech — this also means additional expenses. It’s difficult to determine how they plan to fund all these initiatives based on publicly available data. Given the relatively modest overall spending increase (less than 4.5 trillion rubles compared to the 2024 budget law), it seems likely that 5 areas will face cuts.

For 2025, based on the available information, we see an unexpected picture: in previous years, while defense spending grew dynamically, social spending also rose, but in the coming year, social expenditures seem to be decreasing — if Bloomberg's document is accurate. We’re seeing double-digit growth in producer prices in the industrial sector, and I believe defense manufacturers are no exception. It’s reasonable to assume that the increase in defense spending will largely offset inflation, rather than significantly boosting production output.

In my view, this budget, combined with the rise in the key interest rate, will provoke a recession in the economy. According to the Bloomberg leak, there are no drivers of growth included in [Russia’s upcoming] budget.”

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