Vladimir Putin worried about the Russian economy, while Trump threatens sanctions

par Darya Korsunskaya, Guy Faulconbridge et Gleb Stolyarov

(Reuters) – President Vladimir Putin is growing increasingly concerned about imbalances in the Russian economy as Donald Trump threatens sanctions to end the war in Ukraine, five sources with knowledge of the matter told Reuters. situation.

The Russian economy, which is driven largely by exports of oil, gas and minerals, has posted robust growth over the past two years despite sanctions programs imposed by Western countries following the invasion of Ukraine in 2022.

Domestic activity has nevertheless deteriorated in recent months, buckling under the weight of labor shortages and sky-high interest rates introduced to combat inflation caused by military spending.

Faced with this observation, part of the Russian elite is beginning to take into consideration the potential advantages of a cessation of hostilities agreement negotiated between Moscow and Kyiv, according to two of the sources familiar with the ongoing discussions in the Kremlin.

Donald Trump, who promised during his campaign to quickly end the war in Ukraine, said this week that new sanctions and tariffs would be imposed on Russia if Vladimir Putin refused to negotiate.

However, a Kremlin adviser said on Tuesday that Russia had not yet received specific proposals for holding talks.

Russian economic problems are the subject of debate among the country’s elites. If Vladimir Putin recognized the situation during his traditional December conference, the Kremlin spokesperson, Dmitri Peskov, judged in November that the economy was able to meet all needs in military and social terms. .

Days before Donald Trump’s inauguration, outgoing President Joe Biden imposed the largest sanctions package ever targeting Russia’s energy sector. According to former national security adviser Jake Sullivan, this decision could give Donald Trump the advantage in negotiations by allowing him to increase economic pressure.

Vladimir Putin has repeatedly stated that Russia will not give in.

With its 2,200 billion dollars (2,110 billion euros) in gross domestic product, the Russian economy has shown great resilience since the start of the war despite the most severe sanctions ever imposed by Western countries.

After contracting in 2022, Russian gross domestic product grew faster than that of the European Union or the United States in 2023 and 2024. This year, however, the central bank and the International Monetary Fund are forecasting an acceleration of less than 1.5% against slightly more optimistic forecasts from the authorities.

Inflation has reached a double-digit level despite a key rate of 21%.

WAR OBJECTIVES ACHIEVED

Vladimir Putin considers that his main war objectives have already been achieved, territorial and strategic objectives with the weakening of the Ukrainian army, according to one of the sources.

And he recognizes the extent to which the war is weighing on the Russian economy, the source added, citing “very big problems” such as the impact of high interest rates on non-military sectors.

Russia has increased its military spending to a post-Soviet record of 6.3% of its GDP, or a third of its budget. This spending has accelerated inflation, pushing up wages, pushing the government to raise taxes and forcing some companies to restructure their debt.

PUTIN’S CONCERNS

The Russian president’s frustration was clearly on display during a meeting in the Kremlin with business leaders on December 16, where he rebuked some of the country’s top economic figures, according to two of the sources.

One of them, who was briefed after the meeting, heard that Vladimir Putin had shown his displeasure after hearing of a decline in private investment amid rising credit costs.

The Kremlin report does not specify which companies were present that day. One of the sources nevertheless indicated that the governor of the central bank, Elvira Nabioullina, was not present.

Vladimir Putin told his ministers in front of television cameras on Wednesday that he had discussed with businesses the risk posed by falling private investment, apparently referring to the December meeting.

Some of the country’s most influential businessmen, including Rosneft CEO Igor Sechin, Rostec CEO Sergei Chemezov and aluminum tycoon Oleg Deripaska, have publicly criticized the interest rate hike.

Representatives of two of Russia’s largest banks, German Gref of Sberbank and Andrei Kostin of VTB, have asked Elvira Nabiullina to refrain from raising interest rates again for fear that Russia will enter a period of “stagflation,” one of the sources said.

At its last meeting on December 20, the Russian central bank decided to keep its key rate at 21% despite market expectations, which were counting on an increase of 200 basis points.

In a speech after the meeting, Elvira Nabioullina, who is increasingly criticized but remains one of the figures most loyal to the Russian president, denied having given in to pressure.

Elvira Nabioullina, German Gref and Andreï Kostine did not immediately respond to a request for comment.

(Reuters reporting, with Andrea Shalal in Washington, written by Guy Faulconbridge; French version Pauline Foret, edited by Sophie Louet)