RPT-Russian economy faces slowing growth as war drags on, Bank of Finland says

HELSINKI, March 24 (Reuters) - Russia's economic growth is expected to slow this year and in 2026-2027 but a full-blown economic crisis is unlikely despite risks wrought by the war in Ukraine, the Bank of Finland said in a report on Monday.

Fuelled by soaring government spending, military production and exports of oil, gas and minerals, Russia's economy has grown strongly after contracting in 2022, withstanding the impact of Western sanctions better than Moscow or the West had expected.

The Bank of Finland's Institute for Emerging Economies (BOFIT), which for decades has analysed the economy of neighbouring Russia, said it expects the Russian gross domestic product (GDP) to grow by around 2% this year, down from an estimated 4.1% in 2024.

Russia's own central bank forecasts that the Russian economy's growth rates will fall to 1-2% in 2025 from 4.1% in 2024 as a result of its monetary policy, while the Russian government expects the economy to grow by 2.5% in 2025.

In 2026 and 2027 Russia's growth would likely slow to around 1%, hit by acute labour shortages and accelerating inflation, the Finnish central bank research unit added.

While the war has degraded Russia's long-term growth outlook, the country still has sufficient economic resources to sustain its military campaign even if the costs continue to grow, according to the analysis.

"For the moment, Russia has sufficient economic resources to continue the war in Ukraine," BOFIT Senior Economist Heli Simola said in a statement accompanying the forecasts.

"That is Russia's most important goal regardless of the suffering it causes or the costs, but the costs become continuously higher."

The immediate impact on the Russian economy of any ceasefire in Ukraine would remain limited as long as uncertainty about a final resolution of the conflict exists, according to the report.