Stubborn inflation, exorbitant bank loans, risks of bankruptcies and gloomy prospects: the bad news is piling up for the Russian economy, under the effect of three years of Western sanctions, the cost of the invasion of Ukraine and despite optimism proclaimed 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 had raised its key rate to 21% in October – unprecedented since 2003 — to try to influence it.
The Russian press, usually quick, like the Kremlin, to praise the resilience of the national economy, is now echoing 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 in particular 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 needs hands to increase the rate of arms production.
This reality “slows down growth,” 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,” told AFP.
“Madness”
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).
The boss of the BCR, Elvira Nabioullina, who wants to prevent “the disease” of inflation “becoming chronic”, could even decide on a new increase in the key rate on Friday, even if this possibility has already prompted a lifting of shields from the big bosses.
At the 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, noting “significant signs of slowdown” in the economy.
Even the boss of the military-industrial conglomerate Rostec, Sergei Tchemezov, close to Vladimir Putin, described the level of interest rates as “madness”, while Russian Railways (RZD) will reduce their interest rates by around 40%. investments 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 Mr. Nadorchine, predicting that companies will no longer be able to repay their loans.
Deceleration in 2025
Faced with these headwinds, the Central Bank anticipates a pronounced deceleration in GDP growth in 2025, 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, with 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 and gas 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.
