Copyright kyivpost
Russia’s defense sector shows signs of slowing down following three years of high growth fueled by the war in Ukraine, according to a report. Data from national statistics agency Rosstat suggest the military-industrial complex that forms the backbone of Russia’s war economy may be stalling after three years of double-digit growth, the Moscow Times, an independent news outlet, reported. Companies linked to the military stagnated or declined in September for the first time since 2022. Following year-on-year growth of over 20% in August, the manufacture of “fabricated metal products” fell by 1.6% the following month, according to Rosstat figures. The same category recorded growth of 26.4% in 2023 and 31.6% in 2024. Meanwhile, production of “other transport equipment,” including tanks and armored vehicles, slumped to growth of just 6% year-on-year against more than 60% in August. br> ‘Shocking’ data Analysts at Russian consulting firm MMI said the data “look shocking” and dragged down the broader manufacturing index, whereas before the sector had propped it up. Russian manufacturing as a whole rose just 0.4% in September compared to 2.4% in August, the paper noted. An analyst at PSB Bank observed that September’s output was the weakest since early 2023 and that industrial production, Russia’s largest economic sector, accounting for over 30% of GDP, “has almost stopped growing.” Overall output was up just 0.3% in September 2025 compared to 5.6% growth a year earlier. Furthermore, the paper cited the Russian Academy of Sciences’ Institute of Economic Forecasting as reporting that 18 out of 24 manufacturing sub-sectors that together account for almost 80% of Russia’s production are now in recession. Interest rate cut Against this backdrop, Russia’s Central Bank cut interest rates on Friday in an attempt to shore up the economy. The reduction from 17% to 16.5% was the fourth consecutive trimming since June, when the benchmark rate stood at a wartime peak of 21%. The bank said in a forecast that it expected interest rates to average 13%–15% in 2026, up from an earlier prediction of 12%–13%, justifying its increased outlook with the need to tackle high inflation and labor shortages. The revised outlook also adjusted the economic growth foreseen by the Central Bank, down to 0.5%-1% from the previous 1%–2%. It also upped the inflation forecast for next year to between 4% and 5%. “The Central Bank is essentially stating that next year we may see very severe economic stagnation,” one independent economist was quoted by the Moscow Times as saying. Politico observed that it is “unusual for a central bank to lower its policy rate while revising its inflation outlook upward, since lower rates are usually linked to higher inflation, and central banks are tasked with maintaining price stability.” The news service observed that the move followed Washington’s imposition of sanctions on two of Russia’s biggest energy companies, Rosneft and Lukoil, and pointed out that the impact of sanctions, coupled with the need to maintain high arms output to prolong the war, had put policymakers in a difficult position. The economy has also been hit by a sustained Ukrainian drone campaign targeting oil refineries and putting pressure on fuel prices. The bank seemed to acknowledge this with the statement: “Geopolitical tensions remain a significant uncertainty factor.”
