Russia's economy trapped between stagnation and inflation — Ukrainian intel

Ukraine's Foreign Intelligence Service reported the information.

GDP near zero and investment decline

In 2025, economic growth nearly ground to a halt: GDP hovered around the zero mark (-0.3% in Q1, 0% in Q2, +0.1% in Q3). "Even the slight uptick mid-year was confined to the military-industrial complex and certain segments of raw materials industries, creating no impulses for the civilian economy," intelligence sources note.

They add that investment activity, after a brief rise at the beginning of the year, sharply declined: in Q2 and Q3, fixed capital investments fell by 3.7% and 1.7% respectively.

"Businesses abandoned modernization, cut back on equipment purchases and capital goods, and the shortage of financial resources will persist even if monetary policy is eased," the statement reads.

Tax changes and growing budget deficit

Additional pressure, intelligence sources noted, comes from the budget sector.

"The state reduced incentives through tax changes, and in 2025, maintaining high expenditures against falling revenues led to a growing deficit. In 2026-2028, fiscal policy will become a constraining factor due to spending cuts and increased tax burden, cementing an inertial scenario of prolonged stagnation with heightened risks of stagflation," the Foreign Intelligence Service emphasizes.

Businesses expect profit decline

Domestic demand remains the most vulnerable area.

"The business confidence index in retail trade remained consistently negative throughout 2025, dropping to -6 in Q4 – the worst level since 2022. Against this backdrop, 44% of retailers expect declining profits and profitability in 2026, while only 29% anticipate sales growth – the lowest figure in a decade," the statement indicates.

Deteriorating consumer sentiment

Consumer sentiment is also rapidly deteriorating. Since June 2025, sales have contracted across most product categories, and during the 2026 New Year holidays, shopping center foot traffic fell nearly 20% year-over-year. High interest rates sharply increased costs and borrowing expenses for small and medium-sized businesses, limiting working capital financing.

"Russia's retail sector demonstrates weak adaptability and structural fragility. Business pessimism, expectations of falling profitability, and reduced investment are increasingly becoming a self-reinforcing factor of decline," the Foreign Intelligence Service concluded.

• Previously, Ukraine's Foreign Intelligence Service reported that the Russian economy, for the first time since the full-scale war against Ukraine began, has been officially recognized by the Kremlin as having lost momentum and entered a stagnation regime.

• Russia's economy began 2026 with a noticeable acceleration of inflation, which is hitting essential goods.