Table of contents
Key takeaways
The conflict in the Middle East has temporarily pushed oil prices higher, prompting us to raise our Urals forecast to $66/bbl for this year. However, our long-term forecasts remain unchanged, as we expect a market correction later on. The suspension of the budget rule until the end of Q2 reduces Russia’s borrowing needs but prevents replenishment of the National Wealth Fund.
As we now expect an average price of $68/bbl for Russian oil this year, we forecast exports rising to $455 billion. However, we expect the base oil price to be lowered to $50/bbl next year, which would weaken the rouble to 92. Russia’s gold and FX reserves are expected to end the year broadly unchanged, as FX purchases under the budget rule will offset mirror sales from National Wealth Fund investments.
Early 2026 points to an economic slowdown: basic sector output fell by 3.2% y-o-y in January, and industrial production declined for the second consecutive month. It is too early to call a recession, but the risks remain high. A relatively strong rouble and a smaller deficit should help reduce inflation, allowing the CBR to continue easing policy.
Economic activity fell sharply in January—February as demand was pulled forward ahead of the VAT increase. Inflation slowed to 0.73% m-o-m in February (6.00% y-o-y), and the CBR cut the key rate to 15%. With higher oil prices, the full-year deficit is now projected at 1.9% of GDP.
Russian companies are shifting from GenAI pilots to industrial deployment, driven by direct business benefits such as time savings and lower routine costs. The market is projected to reach ₽778 billion by 2030, although a shortage of computing power and unclear regulation remain major constraints.
Russian financial institutions are rapidly scaling up AI adoption across multiple functions, including credit scoring (used by 62% of banks), transaction analysis for KYC/AML (44%), customer service (42%) and fraud prevention (44%). The Bank of Russia has responded by developing a code of ethics for AI in finance, while major players such as Sber, Alfa-Bank, VTB and T-Bank are beginning to set industry standards.
AI is improving personalisation and conversion in tourism: 35% of Russian travellers are willing to buy tours fully or partially designed by AI. Online aggregators, hotels and airlines are using AI for ranking, communications and review processing. The rollout of these tools makes it possible to tailor tours and trips to individual preferences and specific requests.
The new national project "Development of space activities" allocates ₽4.4 trillion from the budget and aims to attract ₽490 billion in private investment by 2036. Private projects, including the Bureau 1440 satellite constellation and the Novy Start launch pad at Vostochny, are already under way.
Russia’s smart home market is projected to grow from ₽110 billion to ₽440 billion by 2030, and in Moscow such systems are already present in 95% of new buildings. A national standard has been introduced, but the high cost of smart home features continues to constrain wider adoption.
Russia Economic Monthly
Escalation in Middle East to provide temporary relief
The events in the Middle East have been unfolding rapidly, so we need to update our forecasts again. We are raising our projections for the average oil prices this year—to $66/bbl for Urals and to $68/bbl for the oil price used for taxes. However, we expect to see a correction in the oil market in the not-too-distant future, so our longer-term oil forecasts remain unchanged.
Budget deficit to shrink this year. We forecast the budget deficit this year at 1.9% of GDP, down from 2.6% of GDP last year. While the pause to the budget rule over March—June will prevent a replenishment of the National Wealth Fund, it will also reduce Russia’s borrowing needs.
Trade surplus may widen to $145 billion, current account surplus to $75 billion this year. If the budget rule begins to take effect again in 2H26, the NWF will likely expand by $10 billion. However, the CBR will continue to sell FX to mirror investments from the NWF. Hence, Russia’s gold and FX reserves will likely be little changed at the year-end.
Economy showing signs of a slump early this year. The relatively strong rouble and the smaller budget deficit should help bring down inflation, allowing the CBR to continue its rate cuts. A further ease in monetary policy, in turn, would provide a much-needed boost to the economy. However, global inflation is set to pick up and could eventually put upward pressure on prices in Russia. Hence, there are risks that the CBR will shift to a more hawkish stance.
We have revised our forecasts for oil prices and the exchange rate
The events in the Middle East have been unfolding rapidly, so we need to update our oil price forecasts again. The hostilities in the region and the effective closure of the Strait of Hormuz have had a more profound impact on the energy market than what we expected in early March, when the conflict was just getting underway. Our oil forecasts for 2026 were very conservative at the time: we projected an average Urals price of $44/bbl and an average oil price of $46/bbl for taxes. Due to the recent developments, we are raising our forecasts to $66/bbl and $68/bbl, respectively. That said, we expect to see a correction in the oil market in the not-too-distant future, so our longer-term forecasts remain unchanged.
The budget rule was one of the other main topics of conversation in March. In February, we published a report titled "What Happens If the Government Tightens the Budget Rule". In that report, we concluded that a tightening of the budget rule—lowering the base oil price—would lead to a weaker rouble and increased borrowing, though our calculations showed that the impact would be relatively moderate. In early March, the government itself began discussing a potential tightening of the budget rule. However, it eventually decided to pause the budget rule for the month of March, putting the prescribed sales and purchases of FX on hold. The pause was later extended until the end of 2Q26. It should be noted that FX purchases (rather than sales) were initially expected to be prescribed for April—June given the low oil prices. We assume the reason the government decided to keep the budget rule paused in 2Q26 is that FX revenues come with a lag in the current conditions, and the government did not want to put excessive pressure on the exchange rate.
We assume the budget rule will begin to take effect again in the summer, with the base oil price remaining at $59/bbl over the remainder of the year. However, we expect changes to the budget rule next year. Since we see the current spike in oil prices as temporary, we believe there will still be a need to tighten the budget rule for the years to come.
In our base case, we expect the base oil price to be lowered to $50/bbl next year (versus our previous assumption of $58/bbl from earlier this year). This would cause the rouble to weaken from an average USD/RUB rate of 80 this year to 92 next year. If the cut to the base oil price ends up being less sharp than we assume, the rouble will likely be slightly stronger next year.
How the budget is looking under the current conditions
Higher oil prices are providing significant support for the budget. With our previous forecasts for an average oil price of $46/bbl and an average USD/RUB rate of 83 this year, we projected a federal budget deficit of ₽7.3 trillion, or 3.1% of GDP. With our new forecasts of $68/bbl for the average oil price and 80 for the average USD/RUB rate, we now anticipate a deficit of ₽4.4 trillion, or 1.9% of GDP. Going forward, the budget deficit should continue to shrink amid fiscal consolidation and an economic recovery.
While the decision to forgo FX purchases in 2Q26 will prevent the replenishment of the NWF, it will also reduce Russia’s borrowing needs. We now see net borrowing this year at around ₽5.5 trillion (2.3% of GDP), below last year’s ₽5.6 trillion (2.6% of GDP). We expect the NWF to expand by approximately $10 billion in 2H26, assuming the budget rule will be back in effect.
A lower base oil price would lead to higher borrowing. However, we still expect net borrowing to remain within 2.5% of GDP over 2026–28, at levels that should be manageable for the financial sector. The charts below illustrate what a change to the base oil price next year would mean for the NWF and for borrowing. One thing we will note is that if the base oil price is reduced to $50/bbl, the liquid portion of the NWF would likely grow over 2026-28. If this happens, the government could restart investments from the NWF, which would help along the expected economic recovery.
Trade and current account surpluses will be larger than previously expected
With our old forecast for the average oil price this year ($46/bbl for exported oil), we projected Russian exports at $400 billion, down from $420 billion last year. This would have narrowed the trade surplus to $95 billion this year from $117 billion last year. We previously expected a current account surplus of $25 billion this year versus $42 billion last year. We also expected to see a rather sharp drop in Russia’s gold and FX reserves this year (by more than $30 billion) due to the fiscal support under the budget rule and the FX sales to mirror investments from the NWF.
The surge in oil prices has significantly changed the outlook for the balance of payments. Since we now expect an average price of $68/bbl for Russian oil this year, we see exports increasing to $455 billion. This would widen the trade and current account surpluses to $145 billion and $75 billion, respectively. Our expectations for gold and FX reserves have also changed. Although there will still be $10 billion in FX sales to mirror investments from the NWF, the FX purchases that will be called for under the budget rule (which are likely to begin in July, assuming the pause to the budget rule ends) will offset these sales, keeping Russia’s gold and FX reserves little changed at the year-end. If the government cuts the base oil price to $50/bbl, we would expect around $20 billion in annual FX purchases over 2027–28. However, if this happens, investments from the NWF would likely resume, along with the mirror FX sales.
Economy showing signs of a slump early this year
In 2025, the Russian economy slowed sharply, with GDP rising only 1.0% and basic sector output growing only 1.4%. As we noted in our report titled "Consumption Will Continue to Drive Growth This Year," economic growth has recently been driven by sectors benefiting heavily from government orders, as well as short-term household consumption. Meanwhile, private investment demand has declined, along with demand for consumer durables, furniture and construction materials.
It appears the negative trends remained in place at the beginning of 2026, as basic sector output fell 3.2% y-o-y in January. The deepest declines were in the construction (16%), wholesale trade (11.3%), freight transport (5.8%) and manufacturing (3.0%) sectors. Industrial production also dropped in February.
We are not calling a recession just yet—that would require an economic downturn lasting for at least two quarters. However, the situation is quite concerning, and there will likely need to be some stimulus to revive lending, consumption and investment. Higher oil prices will not help much here, though the relatively strong rouble and the smaller budget deficit should help drive down inflation in Russia. On the other hand, global inflation will likely accelerate amid rising prices for fuels, metals and fertilizers. There is a chance the global inflationary pressure will eventually start to be felt in Russia, as we saw in 2021. However, for the time being, we forecast that inflation this year will be limited to around 5%, allowing the CBR to lower the key rate to 12% by the year-end. Although we currently expect the Russian economy to grow 1% this year, the risks of a recession should not be ignored.
Recent developments
A decline in economic activity early this year. Output from the basic sectors of the Russian economy fell 3.2% y-o-y in January after rising 4.0% in December. The decline, the first since 2023, owed mainly to deterioration in the industrial production, construction and wholesale trade sectors. Meanwhile, the latest data on industrial production showed a 0.9% y-o-y decline in February following a 0.8% drop in January. We attribute the decline in economic activity early this year to the VAT hike, which may have pulled demand forward to 4Q25. We expect economic activity to recover over the remainder of 2026 amid the CBR’s continued policy easing. Hence, we forecast 1% GDP growth this year.
Inflation slows to 0.73% m-o-m in February from 1.62% in January. This brought y-o-y inflation to 6.00%, down from 5.91% in January. The slowdown owed mainly to the fading impact of the one-offs from January, such as the VAT hike and the annual tariff indexation. However, it is worth noting that monthly inflation remained above the rate corresponding to the CBR’s 4% target. Services remained a key source of inflationary pressure in February, along with fruit and vegetable prices, which rose 3.67% m-o-m due to seasonal factors (though they fell 2.08% y-o-y). Core inflation also slowed in February—from 0.95% to 0.52% m-o-m, and from 5.43% to 5.18% y-o-y. Overall, the February inflation data confirmed that the uptick in January was a temporary phenomenon rather than the start of a new trend.
Russia reports ₽1.7 trillion budget deficit in February. Federal budget expenditures rose 14.1% y-o-y to ₽4.1 trillion in February after dropping 1.4% in January. Spending over the first two months of the year was up a moderate 5.8% y-o-y. However, the front-loading of spending will likely continue over the remainder of 1H26, so we think it is still possible that the Finance Ministry will overshoot its target for the year. Meanwhile, budget revenues decreased by 10.1% y-o-y to ₽2.4 trillion in February. With the low oil prices and the strong rouble, oil and gas revenues fell 44.0% y-o-y to just R432 billion. Since we now expect an average oil price of $68/bbl and an average USD/RUB rate of 80 this year, we forecast a budget deficit of ₽4.4 trillion, or 1.9% of GDP.
CBR lowers key rate 50 bps to 15.00% at its March meeting. The regulator noted that the economy was moving back into a balanced growth trajectory, and that price growth slowed in February and March following the sharp uptick in January (which was caused by one-off factors). The CBR noted that its measures of underlying inflation were running at 4-5% in annualized terms. However, it also pointed out that there was a great deal of uncertainty surrounding the fast-changing external conditions, which could lead to a slowdown in global demand and a pickup in global inflation (with all the supply disruptions and logistics issues).
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GenAI in Russia is moving from pilots to scale
Russian companies are no longer budgeting only for GenAI pilot initiatives and are beginning to plan recurring spending on platforms and integration, as they are seeing direct business benefits in the form of time savings, lower routine costs and faster product launches. This shift requires market participants to develop full-fledged AI strategies, where the adoption of new tools is driven not by PR objectives but by clear business pragmatism.
Just AI co‑founder
Approaches to project delivery are changing. We are seeing fewer proof-of-concept initiatives, and companies are increasingly moving straight to industrial deployment. In other words, the growth rate in the number of projects is slowing, but a greater share is progressing to later stages. In 2024, pilots accounted for 90% of the projects in our portfolio, whereas today their share has fallen to 70%, and 20–25% are already in the scaling phase.
Largest GenAI market sectors in Russia, 2025
A shortage of infrastructure is a major challenge for the industry
According to expert estimates, demand for computing power is growing exponentially: over the next two to three years it is expected to increase three- to sixfold. More than half of Russian companies (51%) report a need for additional computing resources, while a further 40% are only partially supplied with them.
Source: Selectel
The draft law on AI regulation is under discussion
One of the key obstacles to large-scale AI deployment is the lack of clear regulation. In March, the Ministry of Digital Development published a draft law on AI regulation in Russia, which is expected to enter into force on 1 September 2027. The draft law introduces a classification of AI models into sovereign, national and trusted models, which will be eligible for state support.
Sovereign and national models: all stages of the lifecycle — development, training, deployment and operation — are carried out in Russia by Russian citizens and Russian legal entities, with training based on local datasets
Trusted models: models that have undergone additional security checks and are authorised for use in critical infrastructure facilities
AI is being actively adopted across the Russian financial sector
AI is gradually being integrated into all areas of financial market participants’ operations, increasing the need for a clear regulatory framework. In lending, AI is used for the hyper-personalisation of loan offers, assessment of default risk, customer income forecasting, cross-selling of loan products and credit scoring. Systemically important banks reported that the degree of AI autonomy in scoring for individuals and SMEs was approaching 100%.
Source: The Central Bank of the Russian Federation
44%
of banks use AI for transaction analysis
KYC/AML and document workflow automation
Alfa-Bank has integrated a digital analyst, Deep Research, into its AlfaGen platform (built on the GPT-OSS-120B technology stack and Yandex Search API), which can produce structured reports from multiple sources in 15 minutes.
42%
of banks use AI to provide customer advice
Customer service
At T-Bank, around 40% of customer requests are handled by chatbots without any human involvement.
44%
of banks use AI to detect fraud and ensure the security of transactions
Fraud prevention
MTS Bank has introduced a "digital distrust" principle under which AI algorithms continuously look for inconsistencies in customer behaviour and falsified metadata. In 2025, this enabled the bank to prevent an additional 15,000 illegal transactions.
The financial sector begins to set industry standards for AI use
Sberbank’s launch of the GigaChat large language model set a technological benchmark for market participants, followed by efforts to define its use in financial services. In early 2026, the FinTech Association completed a large-scale pilot project to test large language models for building AI agents. More than 20 organisations took part, including banks, insurers, fintech and IT companies such as Sber, AlfaStrakhovanie, VTB, Gazprombank, Yandex and others. Based on the results, the working group proposed a reference architecture for the safe deployment of AI solutions within the banking perimeter.
The Bank of Russia develops a code of ethics for AI in finance
The regulator states that it follows a risk-based and technology-neutral approach to overseeing the use of AI. It notes that many risks are not unique to AI and are already covered by existing regulation, with the focus therefore placed on addressing AI-specific risk factors.
A key step has been the development of the Code of Ethics for the Development and Use of AI in the Financial Market. The document is based on a human-centric approach: bank clients must be able to opt out of interacting with AI, and decisions made by neural networks can be reviewed at the customer’s request.
AI becomes a new growth driver for Russia’s tourism industry
The use of neural networks is increasing the personalisation of travel products and improving overall customer satisfaction, enabling companies to achieve higher conversion rates in a highly competitive market. At the same time, new technologies in tourism are gaining traction not only among younger travellers but also among more affluent customer segments. Russians aged 35 to 44 are the most likely to entrust holiday planning to AI, with 41% ready to delegate the creation of their travel itinerary to intelligent systems.
25%
increase in traffic to AI-powered travel services for trip planning since the beginning of 2026
35%
of Russian travellers are willing to purchase tours fully or partially designed by AI
AI boosts conversion on travel aggregators and metasearch platforms
One of the most mature areas of AI adoption is online travel agencies and metasearch platforms, where neural networks have long been used to rank hotels, forecast prices, segment audiences and improve booking conversion.
Aviasales
The Aviasales aggregator uses AI to rank hotels by predicted conversion, which has led to a 17% increase in average order value, a 6% increase in conversion to sale and a 19% rise in overall revenue by promoting higher-priced hotels to the top of search results
AI now handles most customer service interactions and communications
Marketing and communications are emerging as the primary AI use cases: 22% of hoteliers rely on AI to prepare advertising materials, copy, and creative assets. 21% use AI to draft and optimise descriptions of hotels and rooms, while 18% deploy it to analyse guest reviews, process feedback, and generate replies. Around 15% of respondents already leverage AI for guest communications, including drafting emails and automated responses.
Azimuth Airlines
At Azimuth Airlines, a chatbot powered by Sber’s GigaChat model processes around 86% of customer enquiries, including questions about bookings, carriage rules, and some non‑standard requests
Avito Travel
On the Avito Travel accommodation platform, neural networks analyse guest reviews and automatically identify key property attributes such as cleanliness, host behaviour, and accuracy of the listing. AI models also scan listings and bookings for anomalies and potential violations before check‑in, filtering out high‑risk options in advance. As a result, the number of bookings involving violations has fallen threefold over the past 2.5 years
AI simplifies the creation of custom travel offers
For Generation Z and millennials, personalised recommendations based on their digital footprint have become an expected standard and are now a major driver of demand for digital travel products. The rollout of AI solutions makes it possible to tailor tours and trips to individual preferences and specific requests.
RussPass
This approach is already being implemented by RussPass, a platform launched on the initiative of the Moscow city government. In 2026, RussPass introduced a dedicated AI‑powered trip builder: users complete a short questionnaire by selecting a city or region (with an option to "Suggest a random destination"), travel dates and preferred travel format, after which the system generates up to six ready‑made itineraries based on their answers
Russia attracts private investment into the space sector
In 2025, Russia launched a new national project titled "Development of Space Activities." The programme comprises eight projects, ranging from satellite communications to sovereign access to space. Most of the funding is earmarked for practical objectives: increasing the commercial relevance of the space industry and expanding space infrastructure. Achieving these goals will require substantial private investment.
The private sector’s share in the space economy is set to multiply
The state corporation Roscosmos plans to increase the share of private investment in the sector from 5% in 2024 to 35% over the next ten years. This work is currently under way in two directions: the first is the development of orbital communications services, and the second is the sale of high-resolution satellite imagery, supported by satellites scheduled for launch in 2026.
Authorities create incentives for private investment
In 2024, Russia adopted a public—private partnership law that allows private companies to use Roscosmos infrastructure, including ground facilities for satellite systems, cosmodromes, and research centres. In October 2025, Roscosmos and VEB.RF established a dedicated project office to attract private investment into orbital satellite constellations.
10%
rocket and space revenue growth in 2025
Private capital moves into key space assets
One of the key private players in this segment, Bureau 1440, is building a low-Earth-orbit satellite constellation—Russia’s answer to Starlink—to provide high-speed broadband connectivity. In March, the company simultaneously launched 16 satellites in the Rassvet constellation, which is expected to deliver internet speeds of up to 1 Gbps.
At the Vostochny Cosmodrome, the private project Novy Start is building a private launch pad. The first launch is scheduled for Q1 2027. This is Russia’s first private space infrastructure project to reach the implementation stage.
₽600 bn
total investment planned for the Novy Start project over eight years
Russian companies are deploying innovations in space
The private sector is helping the state roll out digital innovation in the space industry. In November 2025, Sber provided the Soyuz MS-28 crew with GigaChat-based AI software for the first-ever experiment in Russian spaceflight to integrate AI into astronauts’ work in orbit. The system supported operational and personal log-keeping, automatically converting voice notes into text and simplifying on-board processing of research results. In April 2026, the Corporation of Robotics announced the development of an AI system for the Teledroid robot, which is scheduled to be sent to the ISS in the second half of 2026. It will be able to perform part of the station’s maintenance tasks autonomously.
Russia’s smart home market is rapidly maturing
For developers, integrating smart home technologies into new buildings—especially in the capital region — is gradually ceasing to be a competitive advantage and is becoming part of basic infrastructure. However, the depth of integration remains constrained by the affordability limits of mass-market consumers.
₽110 bn →₽440 bn
projected growth of Russia’s smart home market from 2024 to 2030
Devices and systems converge into one ecosystem
The smart home market consists of two segments: smart household devices, such as smart speakers and robot vacuum cleaners, and integrated home management systems, including smart meters, climate control and security systems. Major domestic technology companies such as Yandex, Sber and MTS are developing their own smart home solutions and building ecosystems of compatible devices around them, which are increasingly being adopted by developers. For example, BAZA Development projects use Yandex’s smart home ecosystem.
As a result, the two segments are converging: smart devices provide users with an entry point into residential infrastructure through voice interfaces and mobile apps, while developers and property management companies are becoming operators of the building’s digital environment, offering subscriptions and additional services.
58%
of Russians already use smart home devices or plan to install them
85%
of Russians expect smart home systems to be integrated into new housing
Smart home becomes a standard in Moscow
In Moscow, automation technologies are present in 95% of new residential developments. In 2022, only one-third of housing projects under construction in the capital region offered smart home features.
Smart home standards are now regulated
In late February 2026, a national standard came into force in Russia, setting rules for the operation of residential buildings equipped with digital systems ("smart homes"). The document introduces new requirements for property management companies, building infrastructure and interaction with residents.
Developers integrate smart home systems from the outset
In the LesART residential complex in St Petersburg, a three-level smart home system is implemented, including in-apartment lighting control, actuator systems and other technological solutions.
In the Akvilon Leaves residential complex in St Petersburg, the proprietary inHOME 3.0 smart home system includes climate control, energy-saving modes, automated meter data transmission and leak protection.
High costs limit further adoption
87% of new housing buyers in Russia consider property prices to be high or unjustifiably high, making them highly price-sensitive to additional features, including smart home systems. The median acceptable monthly payment for a smart home system is estimated at around ₽500.
Source: erzrf.ru