MOSCOW, November 15. /TASS/. The European Commission (EC) has upgraded its outlook on Russia’s GDP growth to 3.5% from 2.9% for 2024, and to 1.8% from 1.7% for 2025, according to its Autumn 2024 Economic Forecast. The EC also projects Russia's GDP growth for 2026 at 1.6%.

"Following unexpectedly strong GDP growth in the first half of 2024, economic activity is projected to slow down during the rest of the year and decelerate further in 2025 and 2026," the report said.

The strong expansion of the Russian economy from the end of 2023 continued into the first half of 2024, driven by robust private consumption and investment, the EC said, adding that private consumption growth was supported by increasing real wages, while household spending was boosted by government transfers to soldiers and their families.

Private investment, supported by government-subsidized loans, increased as demand for domestic goods picked up, following the exit of foreign firms. An additional boost to investment came from the state-financed expansion of the war-related sectors, including transportation or machinery, according to the report.

Private consumption growth is forecast to remain strong over the forecast horizon, although decelerating somewhat as real wage growth slows down and the government curbs its loan subsidies. Investment growth is projected to decelerate in 2024 and even contract in 2025, before rebounding in 2026.

Unemployment in the country is expected at 2.6% in 2024 and 2.7% in 2025 compared to previously projected 3% and 3.2%, respectively. In 2026, the EC projects unemployment in Russia to rise to 3%.

Inflation has accelerated since the beginning of 2024, peaking at 9.1% in July. In response, the Russian Central Bank raised its benchmark rate by 500 basis points since July in three consecutive hikes to 21% in October. Going forward, headline inflation is set to moderate, with first signs of deceleration appearing in September, when inflation stood at 8.6%, the EC said.

The European Commission (EC) expects inflation in Russia at 8.1% in 2024, and at 5.7% in 2025. In 2026, inflation is projected to go down to 4.5%, which is close to the Central Bank’s target of 4%.

"The gradual decline in inflation is set to be driven by slowing real wage growth, weakened consumer lending due to tight monetary policy and stricter macroprudential regulations," the report said.