Sergey Drobyshevsky, Principal Researcher at the Gaidar Institute, spoke to ”Izvestia” on current dynamics of business activity, inflation prospects and consequences of possible VAT increase.
“The decline of the PMI index to a local minimum in early autumn 2025 is not surprising: the economic activity has been slowing for several months in a row, and at present, there are no significant factors capable to change the trend in managers’ sentiment. However, the specific numerical value of the index does not always indicate the actual scale of the downturn, although these indicators are, of course, correlated. According to our estimates, the economy is currently returning to a long-term growth after a period of overheating. Therefore, a PMI decline below 50 p.p. may persist for several months, but this does not indicate a transition to recession.
Current downturn in business activity, as I have already noted, is largely due to the end of the economic overheating period. Therefore, there is no reason to believe it will develop into a recession. Thus, it is the key interest rate that influences inflation, while this phase of the economic cycle can result in either a slowdown or an acceleration of inflation.
Regarding the possible VAT increase, we believe such a measure would have the least negative impact on the services sector compared to other sectors of the domestic market. Due to the non-tradability of services and the absence of direct competitors or substitutes, a higher VAT rate could be largely passed on to prices, and thus the sector's additional costs would be borne by consumers."