Speaking at the St. Petersburg International Economic Forum, Governor of the Bank of Russia Elvira Nabiullina noted that the factors which had driven robust economic growth over the past two years have been largely exhausted. She emphasized the need to seek and develop a new model to ensure sustainable economic progress moving forward.
Amid external pressure and internal structural constraints, the Russian economy has largely exhausted its available growth resources, including labor reserves, underutilized production capacity, the National Welfare Fund, and the benefits of import substitution. The current challenge, according to Andrei Glushkin, Managing Partner at Main Division, is not only to sustain growth but to develop a new model capable of ensuring long-term, sustainable progress.
Following 2022, the Russian economy experienced a largely reactive recovery, aimed at offsetting the disruptions caused by sanctions, capital outflows, and logistical shocks. Growth was driven by adaptation to new external conditions, the mobilization of domestic demand, a surge in defense sector activity, and the activation of previously idle resources. However, this model has reached its limits. Unemployment has fallen to a historic low, production capacity is fully utilized, and credit-based stimulus has reached its peak. As Elvira Nabiullina has noted, the economy is now entering a “cooling phase” after a period of overheating. Going forward, progress will require a fundamental rethinking of the underlying mechanisms of economic growth.
The first signs of an economic slowdown are already becoming apparent, Andrei Glushkin emphasizes. Data from the Institute of Economic Forecasting of the Russian Academy of Sciences shows that in the first quarter of 2025, GDP declined by 0.4% compared to the final quarter of 2024, while the annual growth slowed to 1.4%. The Ministry of Economic Development and the Ministry of Finance have also indicated that the rapid recovery phase is coming to an end.
“The core question now is what the new economic model should look like; there are differing views among officials and experts,” the expert notes. “Supporters of the traditional approach, including the Ministry of Finance, emphasize the ‘technological sovereignty’ – namely, fostering domestic production, reducing import dependence, advancing digital transformation, and expanding military and infrastructure sectors. However, this approach risks perpetuating current limitations unless paired with the efforts to attract private investment, promote institutional reforms, and support science. Therefore, many economists suggest focusing on internal growth drivers such as investing in human capital, innovation, education, entrepreneurship, and improving the business environment.”
At the same time, environmental and resource constraints cannot be overlooked, he says, adding that sustainable development offers another promising direction. This path involves not only quantitative GDP growth but also such quality changes as reducing inequality, boosting energy efficiency, and developing green technologies. Otherwise, Russia risks becoming trapped in stagnation, where structural imbalances prevent both personal income growth and future investment.
Russia thus stands at a crucial crossroads: it can either continue with the old model, one that is increasingly reliant on government spending and resistant to new initiatives, or it can shift towards sustainable, innovative, and institutionally mature growth. The economic transition must be evolutionary, not revolutionary, and driven by long-term stability and prosperity rather than by force – and that is a key condition.
“The future of Russia’s economy largely depends on how promptly and effectively this shift is managed. Without reforms – whether institutional, technological, or educational – the growth will likely remain negligible. But with a strategic approach, the country can build a new model rooted in internal growth sources, innovation, and high efficiency standards,” Andrei Glushkin believes.