The Ministry of Economic Development and the Structure of Russia’s Domestic Market

According to a report published by RBC on 1 November 2025,

“the Russian economy is cooling faster than expected… declining business activity is putting pressure on the labour market.”

At first glance, such indicators may appear to signal a contraction of the internal market: the retail sector is slowing, consumption is falling, and sales dynamics are weakening.

However, a closer examination of demand structure and capital distribution within the economy shows that the internal market is not disappearing — it is being redistributed and concentrated within specific sectors.

The purpose of this analysis is to review official and expert assessments of the so-called “compression of domestic demand,” clarify the methodological and structural factors behind these interpretations, and demonstrate that these changes represent not the disappearance of the market, but its transformation under the influence of governmental, corporate, and financial mechanisms.

1. Official Position of the Ministry of Economic Development

In its forecasts, the Ministry of Economic Development repeats a key thesis: “domestic demand — both consumer and investment — will be the main driver of growth.”

At the same time, the ministry’s own documents note:

• a slowdown in industrial growth (with the exception of the defence sector and IT),
• weakening retail performance,
• declining profitability in transport and logistics,
• instability in the agricultural sector,
• an increase in overdue debt among small and medium-sized businesses,
• risks of reduced employment.

Nevertheless, in public statements these divergent indicators are often attributed primarily to external factors such as sanctions or the international environment, while the most significant changes are occurring within the internal structure of the economy itself — through the redistribution of demand and resources toward large companies and state-owned corporations.

The ministry effectively equates the “internal market” with current consumer spending and investment activity, which narrows the analytical perspective. This approach does not account for the substantial portion of domestic output that is redistributed through mechanisms of corporate reporting, state support, and capital reproduction.

2. Redistribution of Demand: A New Corporate–State Framework

In recent years, a noticeable trend has strengthened in Russia: a number of large corporations report losses on paper while maintaining a positive cash flow. This discrepancy provides access to various forms of state support, including subsidies, tax incentives, and recapitalisation measures.

According to the Accounts Chamber:

• the total volume of state support for industry exceeded 2.6 trillion rubles (≈ £24.4 billion) in 2024,
• more than 1.1 trillion rubles (≈ £10.34 billion) of this amount was allocated to compensate the losses of strategic companies.

Examples include:

• Gazprom: reported a loss of 629 billion rubles (≈ £5.91 billion) while distributing a comparable amount in dividends;
• Rostec: received around 480 billion rubles (≈ £4.51 billion) ( through defence procurement programmes amid internal profit growth;
• Rosseti: wrote off significant debt followed by compensation for tariff-related shortfalls;
• Aeroflot: posted a 34-billion-ruble (≈ £0.32 billion)  loss while receiving 50 billion (≈ £0,47 billion) in additional capital;
• metallurgical companies retained more than 200 billion rubles (≈ £1.88 billion) through tax refunds and preferential regimes.

These financial practices form a system in which an accounting “loss” becomes a mechanism for accessing state resources, while actual domestic demand increasingly concentrates in sectors dominated by large corporate and state-linked structures.

3. Overdue Loans as a Driver of Structural Compression

By autumn 2025, the total volume of overdue loans had reached:

• 3.8 trillion rubles (≈ £35.8 billion),
  including:
• 1.5 trillion rubles in household debt,
• 2.3 trillion rubles in corporate loans.

This dynamic results in:

• a significant portion of consumers falling out of active economic turnover,
• increased reserve requirements within the banking sector,
• reduced liquidity available to the real economy.

However, overdue debt does not disappear; it is redistributed within the financial system through:

• collection agencies linked to major state banks,
• factoring companies,
• write-offs into reserves followed by compensation through budget mechanisms.

This creates a secondary debt market in which large banks — Sberbank, VTB, Rosselkhozbank — along with affiliated financial institutions, are the primary beneficiaries.

At the same time:
• real-sector enterprises,
• small and medium-sized businesses,
• and workers

face restricted access to credit, reduced turnover, and pressure on wages.

4. Issuance and Macrofinancial Effects

To maintain financial-system stability amid rising volumes of non-performing loans, the state expands refinancing and subsidy mechanisms. This leads to:
• increased fiscal pressure,
• stronger inflationary dynamics,
• a gradual shift in the structure of the economy toward servicing debt-related obligations.

As a result, domestic demand does not disappear; rather, it is redistributed toward sectors connected to state programmes, defence-related industries, and major infrastructure and digital companies.

Conclusion

The notion of a “shrinking domestic market” is inaccurate when taken at face value.

What is occurring is a structural transformation:
instead of broad-based consumer activity, turnover is increasingly concentrated within large corporations; the role of the state in capital reallocation is expanding; and the financial system is consolidating resources around major institutional actors.

It is this concentration — rather than contraction — that defines the dynamics of Russia’s domestic market in 2023–2025.