Russia’s Macroeconomic Outlook for Q1 2026

Emily Carter

Welcome to another episode of Global Equity Research, brought to you by Softgate Capital Research—the research arm of Softgate Capital, delivering institutional-grade research to everyone, not just the big funds. I'm Emily Carter, here with my co-host David Mitchell, and today we’re diving into something a bit different from our usual single-company deep-dives or Western macro: Russia’s macroeconomic outlook for 2026.

David Mitchell

Hey everyone. Before we get started, I just want to make Softgate’s stance absolutely clear. This episode is purely informational. We do not encourage investing in Russia, we flatly condemn the war and support Ukraine’s right to defend itself. Softgate Capital has no investments in Russia and it’s part of our ethical guidelines to avoid any sanction-breaching exposure. But—Russia’s economy still moves global markets, so understanding it is, unfortunately, unavoidable for investors worldwide.

Emily Carter

And if you want a deeper dive, full sourcing, charts—the whole report’s downloadable via the link in the description or at research.softgatecapital.com. Make sure you check that out if you want to go beyond the podcast highlights.

David Mitchell

Alright, let’s lay out the big picture here. Russia’s in a phase of slowing but still stable wartime economics. The economy’s holding, for now, but it’s got some deep structural fault lines showing through. Three numbers to remember as we go: GDP growth is hugging 1% for both 2025 and the forecast for 2026. Inflation? That’s eased down from double-digits but still sticks in the mid-single digits—around 6 to 8% right now, maybe down to 4 or 5% by late 2026 if the central bank has its way. And against all odds—seriously, this one surprised me—unemployment is sitting at near record lows: 2 to 3%.

Emily Carter

Yeah, I mean, those numbers look, I don’t know, kind of paradoxical on the surface. It’s a militarized economy but, structurally, it’s got these big cracks starting to widen underneath. So today we’re gonna walk through what’s keeping it stable, what’s brittle, and why that balance could change fast if there’s another shock—be that sanctions, oil, or, you know, even a move toward some kind of détente.

David Mitchell

Exactly. We aren't here to dramatize, but we do need to acknowledge the geopolitical gravity here—Russia’s stability, even if manufactured, sends ripples across everything from energy markets to supply chains.

Emily Carter

So let’s get under the hood. This 1% headline growth rate everyone keeps repeating? It hides a wild divide. Defense and military production are in overdrive. Factories that used to put out farm equipment, or, I don’t know, kitchen appliances—these are now churning out drones, armored vehicles, munitions at record speed. There’s this one example: output in the 'other transport and equipment' sector—think tanks and drones—jumped over 40% year-on-year at one point!

David Mitchell

Meanwhile, civilian industries—autos, consumer electronics, textiles—are sinking or flatlining. Even broader manufacturing, when you strip out war stuff, is basically going nowhere. Services? Pretty weak. Especially anything discretionary: hospitality, travel, even financial services.

Emily Carter

Right, it’s this forced dual economy. In fact, in our report there’s this little vignette about a factory in Tatarstan—used to be making engines for local trucks, now it’s all armored vehicles and drone components. They even repurposed one of the textile assembly lines for camouflage netting. It’s industrial adaptation on wartime autopilot.

David Mitchell

And the problem is, that’s not sustainable productivity. You have growth coming from one giant customer—the state—and almost everything else is getting crowded out or left behind. Eventually, if—or when—military orders level off, there’s not much waiting to pick up the slack.

Emily Carter

Let’s talk inflation and labor, because this is one of those spots where the numbers really mess with my head. Inflation surged past 9% in 2024, right? But now it’s cooling back—headline is maybe 6 or 7% as of late 2025. But, and I wanna stress this, core inflation—so, like, services and nonfood goods—is still sticky. Ranges anywhere from 5 to 6%. And there’s that looming VAT hike in 2026 that could give prices another little jolt.

David Mitchell

That sets up a super tight labor market. Unemployment just can’t fall much lower—around 2% officially, which is wild given historic pre-war benchmarks were, like, 4 or 5%. Labor force participation’s near its all-time high as well. But, the reasons aren’t exactly positive: mobilization, more older workers pulled in, and lots of people leaving the country... so it’s a labor pool that’s shrinking and shifting at the same time.

Emily Carter

And that pushes wages up fast—nominal wage growth is running in the mid-teens, maybe 12 to 17% year-on-year. But, you know, real gains? Only a few percent after inflation. So, yeah, people might take home more rubles, but costs are exploding too. It’s great for workers on paper, but productivity isn’t catching up. That makes it harder to control inflation over time.

David Mitchell

Exactly, Emily. And for employers, especially outside defense, it’s a huge headache. You can’t find skilled labor, and wage bills keep growing. Unit labor costs are up, margins get squeezed. There’s basically no slack left if another shock hits—no pool of unemployed ready to fill jobs if things turn south.

David Mitchell

On to policy—I always call this the “plumbing” of macro. The fiscal side is basically a war budget. Defense and security: 8% of GDP, over 40% of the federal budget. It absolutely dwarfs everything else. Social programs, education, and health—those are pushed aside, growing much more slowly.

Emily Carter

But the headline deficit? Still quite contained—just a couple percentage points of GDP, officially under 1% in 2025. And they’re managing that with increased taxes, drawing down reserves—it’s even gotten to the point where the central bank sold physical gold to plug the gap last year. The flip side, though, is public debt remains low. We’re talking below 20% of GDP, which is almost unheard of for a major economy in conflict.

David Mitchell

Monetary policy is ultra-tight. The key rate’s sitting—what—16 to 18 percent right now? That is extreme by any global standard. There’s gradual normalization expected, maybe 13 to 15 percent by late 2026, but it’s a slow walk back down because inflation's still sticky. This setup keeps growth subdued but stops inflation from running wild, at least in theory.

Emily Carter

And the whole financial system is walled off from the rest of the world. Tight capital controls since 2022 mean banks are liquid—deposits are up, balance sheets look okay on the surface—but lending is squeezed by high rates. Foreign investors have basically left—markets have thin liquidity, yields on corporate bonds often push past, what, 15, 20 percent?

David Mitchell

Exactly. It’s efficient in the sense that it runs, but any outside shock or change in the war dynamic could stress this whole structure. The stability is somewhat, uh, mechanical—like a ledger that’s balanced only by force, not by underlying health.

Emily Carter

Let’s jump into the external sector, which is Russia’s real lifeline at this point. Despite sanctions, energy exports are still massive—$300 to $350 billion a year as of 2025, mostly shipping oil and gas to Asia, at a discount and often through nontraditional or convoluted routes.

David Mitchell

The current account still shows a healthy surplus—4 to 5% of GDP. Imports are down since 2022—so the goods surplus runs high. Key point: China, India, Turkey are now the main buyers, not Europe. But to keep that revenue, Russia’s giving deep discounts. And if oil prices drop, even just to $50 a barrel, the budget and ruble could get hammered. FX reserves are falling—$600 billion now, down from their peak—but still hefty by any international standard.

Emily Carter

And the knock-on effect? Russia’s importing more from China and Turkey, so there’s been a partial substitution for European tech—but the quality and innovation gap is pretty glaring. Capital’s largely trapped in-country. If energy revenue falls, there’s little cushion except reserves or more domestic borrowing.

David Mitchell

That’s the vulnerability. If energy markets get hit—new sanctions, OPEC moves, or just global slowdown—there’s almost no slack. The flip side: if oil or gas spikes, Russia gets an unexpected bonus. But as a strategy, banking on commodity luck isn’t long-term sustainable.

David Mitchell

So, let’s map out some scenarios. The main risks are pretty clear—intensified sanctions, especially on energy. If, say, there’s an embargo or price cap is tightened, export revenues could collapse and the current equilibrium breaks. Or, a sharp drop in oil—down to $50 a barrel or lower—would halve revenue, sink the ruble, and blow up the budget math.

Emily Carter

Domestically, prolonged war or another wave of mobilization could drain labor even more, push inflation higher, and push household and business stress over the edge. On the upside? Well, détente could relax some sanctions, improving capital flows. Or, a spike back to $100 oil could pad the budget and let the government loosen fiscal policy. And, I guess, if import substitution actually works faster than expected, it could cushion against trade disruptions. But... that still looks like a long shot for now.

David Mitchell

For policymakers, the to-do list is: keep fiscal discipline, target disinflation—don’t loosen just because things seem stable. The banking sector needs to remain solid, and, as hard as it is politically, prioritizing non-military sectors for diversification is crucial if they want to avoid stagnation. If I had to watch just one metric, it’d be the oil and gas export revenue—any sharp move there feeds straight through the entire system.

Emily Carter

For me, I’d watch real wage growth versus inflation. As soon as real incomes start falling, the delayed pain from all this ‘manufactured’ stability will show up in consumption data and local stress. I know that’s a little reductive, but wage growth is their pressure valve.

Emily Carter

Let’s do a quick rapid-fire on the big numbers, so listeners can take these away for future reference. 2025 GDP growth: 1 to 1.5%. Inflation: 6 to 8%—but trending down towards 4 to 5% into late 2026 if things go to plan. Unemployment? 2 to 3%. Energy export revenue: $300 to $350 billion, as we said. FX reserves: about $600 billion, which is big, but dropping. And the ruble? About 75 to 80 per US dollar in 2025, which is actually stronger than a lot of people expected.

David Mitchell

Yeah, and beneath those numbers, remember: industrial output outside defense is weak, the current account is still in surplus, but every line item depends on energy flow and government policy. If you hear one of these numbers move, it’s a signal something structural’s just shifted—probably fast.

Emily Carter

So, to sum it up: Russia’s macro story for 2026 is really about resilience with strings attached—stable for now, but brittle if another shock hits. All the underlying fundamentals are kind of held together with policy duct tape, if that makes sense.

David Mitchell

Absolutely. This isn’t a system you’d want to bet the farm on. But it’s a system big enough to ripple out and affect global energy prices, capital flows, even inflation prints in Europe or emerging markets. We’ll do a deeper dive next time into either the rerouting of energy trade or how sanctions are hitting tech and innovation—maybe both if we can squeeze it in.

Emily Carter

And just a reminder—your questions always help us sharpen these sessions, so send them our way. Like, share, subscribe, and definitely visit research.softgatecapital.com if you want more analysis or single-stock coverage.

David Mitchell

Thanks for joining us, Emily. And thanks to all our listeners for sticking with us through the heavy topics as well as the fun ones. See you next time.

Emily Carter

Always a pleasure, David. Take care, everyone!