Russia’s chronic labour crisis is showing signs of beginning to ease, as new data show a slowdown in wage growth and hiring, particularly in the civilian and construction sectors, Kommersant reported this week.

According to a survey by the Institute of Economic Forecasting at the Russian Academy of Sciences, most employers no longer plan to raise salaries in real terms. While inflation has been running at around 10%, nominal wage increases have been higher at around 12% for the last two years leading to a strong increase in real disposable incomes that has been driving a consumption boom.

The Central Bank of Russia (CBR) has acted to cool an overheated economy, using non-traditional non-monetary policy methods introduced last year which appear to be working. The Russian economy contracted in the first quarter of this year in real terms, although put in a nominal 1.4% of growth, and overall growth is expected to come in at around 2% this year, down from 4.3% in the previous two years. The slowdown appears to be now affecting the labour market.

The Russian Academy of Sciences survey was backed up by the most recent S&P Global PMI indices, which all turned negative in June with the composite PMI coming in at 48.5, well below the 50 no-change benchmark. Moreover, the services PMI fell from 52.2 in May to a below-the-waterline 49.2 – the first negative result in more than a year.

S&P’s panellists reported that the employment fell across the private sector with the sharpest decline in the headcount since December 2022 in service firms. The rate of job shedding eased from that seen in May and remains marginal, but “companies noted that lower staffing levels were due to the non-replacement of voluntary leavers,” S&P Global stated.

Concurrently, S&P said that inflation in input prices was down markedly as the CBR’s measures to reduce inflation pressure clearly start to take effect. However, CBR governor Elvia Nabiullina said on July 3 that it was still too early to expect more rate cuts, although rate cuts to boost growth are becoming more likely. During the recent St Petersburg International Economic Forum (SPIEF), Russia’s economic leaders debated if Russia is facing a recession or if the economy is merely cooling. The jury remains out on the question.

Nevertheless, the military Keynesianism boom is clearly over and Russia is facing a much tougher year in 2025. The Russian Academy of Sciences found one in six companies expects to reduce payrolls over the next twelve months, which will hit incomes and take the wind out of the consumption boom. The proportion of businesses planning to expand hiring has fallen to its lowest level since 2022, says the Russian Academy of Sciences.

Delayed salary payments have also increased, reaching a five-year high in the construction sector, according to data from the Confederation of Trade Unions, reports BMB Russia. Although the overall amounts remain relatively modest, the trend reflects growing financial pressures on employers. In addition to rising debt-servicing costs, many companies are facing the gradual withdrawal of preferential lending schemes introduced to cushion the economy against sanctions and wartime disruptions that are part of Nabiullina’s tool box to slow the economy.

“This does not necessarily mean that the labour market crunch that has impacted the Russian economy over the past three years is easing—almost half of businesses are still worried about the lack of qualified employees, albeit down from 60% a month ago,” Andras Toth-Czifra, an analyst with BMB Russia noted. “However, it does suggest that, due to continued pressure on civilian sectors, a hawkish monetary policy, and uncertainty regarding economic prospects and property rights, employers are being increasingly cautious.”

Russia’s leading corporations have been putting a lot of pressure on Nabiullina to cut rates but she has so far refused to act, citing uncertainty in the real economy and persistent geopolitical risks.

Analysts from the Centre for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP), a state-linked think tank, warned of looming financial instability in sectors such as coal mining, oil refining, and construction engineering. Others have warned of a possible bank crisis, due to the rise in the level of non-performing loans (NPLs), which has increased from 4% of the total loan book to 6.2% in June. Nabiullina was adamant there is no bank crisis on the horizon in comments to the Duma this week, and other analysts have also dismissed any threat of a crisis, pointing out the sector is still in profit and well capitalised; 6.2% of NPLs probably understates the level of bad debt in the banking system, but remains a relatively modest level.

Clearly, Nabiullina’s artificial slowdown has increased the pressure on the economy, necessary to bring down inflation, but so far the CBR seems confident that it can manage the deceleration and minimise the pain to businesses. The fact that the debate on the possibility of a recession during the economic session at SPIEF was unusually so open and lively suggests that the economic team are watching the situation very closely and with pragmatism, intending to head off any serious problems early. The Ministry of Finance (MinFin) still has resources in reserve to nip a banking crisis or major state-owned enterprise (SOE) default in the bud if needed for now.

“The absence of clear signs about the state of the real economy and continued war-related constraints” has made the Central Bank wary of relaxing its monetary stance, according to Toth-Czifra. But with labour markets still tight and sanctions continuing to weigh on trade and investment, economists warn that premature rate cuts could trigger a “hard landing” for the Russian economy.