The Russian economy is missing a million employees, weighed down by very high interest rates, while the Ruble is collapsing.
Vladimir Putin in Moscow, Russia, December 16, 2024. (POOL / SERGEI KARPUKHIN)
After three years of Western sanctions and war in Ukraine, difficulties are increasing for the Russian economy, despite the optimism displayed by Vladimir Putin
Latest setback, last week:
inflation accelerated to 8.9% in November
remaining deaf to the efforts of the Central Bank of Russia (BCR) which in October raised its key rate to 21% – unheard of since 2003 – in an attempt to influence it. The Russian press, usually quick, like the Kremlin, to
boast of the resilience of the national economy
now echoes growing problems, illustrated for example by the increase in the price of butter (+34% since January).
For Anton Tabakh, chief economist at the Russian credit rating agency Expert RA, the observed “inflationary wave” is a symptom of “labor shortages and sanctions”, two problems directly linked to the war.
The lack of workers in the private sector, a reality
for years, particularly due to the demographic crisis, has been exacerbated by the departure of hundreds of thousands of men to the front, the flight abroad of hundreds of thousands of others, and competition from the military-industrial complex which has need for hands to increase arms production rates. This reality “slows down growth”, he told the
AFP
Yevgeni Nadorshin, a Russian economist who was an advisor to the Ministry of Economic Development and according to whom
Russia is missing “around a million employees”.
Inflation is favored by the budgetary policy of the Russian state, which spends lavishly to support its war effort (+67.5% budgeted in 2025 compared to 2021).
Up to 30% interest rate
The boss of the BCR, Elvira Nabioullina, who wants to prevent “the disease” of inflation “from becoming chronic”, could even decide to
a further increase in the key rate on Friday
even if this possibility has already sparked an outcry from big bosses. At its highest in 20 years,
interest rates for consumer and business loans are between 25 and 30%.
“The economy cannot survive like this for long,” said German Gref, CEO of Russia’s leading bank, SberBank, in early December, reporting “significant signs of slowdown” in the economy.
Even the head of the military-industrial conglomerate Rostec, Sergei Tchemezov, close to Vladimir Putin, described
“madness” the level of interest rates
while Russian Railways (RZD) will reduce its investments by around 40% in 2025 compared to the current year.
“The number of bankruptcies is about to increase sharply
especially in small and medium-sized businesses, but also in large ones,” warns Evgeni Nadorchine, predicting that companies will no longer be able to repay their loans.
Faced with these headwinds, the Central Bank anticipates 2025
a pronounced deceleration in GDP growth
expected between 0.5 and 1.5%, compared to more than 3.5% forecast for the end of the year. For Evguéni Nadorchine, “the unavailability of credit will immediately limit growth possibilities.” To the point of eventually seeing a cycle of stagflation emerge (low growth and high inflation)? “No”, brushes aside the BCR.
At the same time, in recent weeks, the Russian currency has weakened, a consequence of recent American sanctions targeting Gazprombank, which until now managed all payments from foreign customers purchasing Russian gas.
The Russian currency is at its lowest against the dollar and the euro since March 2022
the greenback currently trading for more than 100 rubles, therefore further threatening the purchasing power of Russians.
However,
there is “no reason to panic”, according to Vladimir Putin
. The Russian president is relying on a very low federal budget deficit, increasing non-oil revenues and the massive arrival of Chinese investors to replace Western ones.
In this grayness, one thing seems clear: the future of the Russian economy will largely depend on the outcome of the conflict in Ukraine, amid speculation about the possible launch of a peace process with kyiv.
