The war in Ukraine has taken a toll on Russia. The country has suffered nearly a million and a half casualties. Attacks on its gas and oil infrastructure have caused widespread gas shortages in 56 of Russia’s 83 regions. The banking industry is in the midst of a crisis.
The economy is teetering on the edge, but not according to the Kremlin.
T-90M from Russia. Image Credit: Creative Commons.
Kremlin spokesman Dmitry Peskov said on Thursday that Russia’s economy is stable.
“The difficulties our economy is going through are well known to everyone. These difficulties are not of a critical nature,” Peskov said to media members.
“The government and the president regularly discuss them and understand what needs to be done to regulate and improve the situation. Macroeconomic stability is being fully maintained,” he added, noting that President Putin characterized the nation’s current growth rate as insufficient.
Russia’s Business Climate Index Fell By 4.5 Percent in July
The Central Bank of Russia’s Business Climate Indicator dropped to –3.6 points, signaling a sharp deterioration in corporate sentiment and marking its lowest level since mid-2022.
This decline highlights significant challenges, including weak consumer demand and growing inflationary pressure. Companies are reporting significant drops in current output estimates and consumer demand.
Price expectations among businesses spiked, reversing a previous declining trend. This is largely attributed to fuel shortages caused by intensified Ukrainian drone strikes on Russian gas and oil refineries.
Russian T-90 Tank. Image Credit: Creative Commons.
Despite the negative index, Kremlin spokesman Peskov insists that the economic difficulties are not critical and can be managed through macroeconomic stability measures.
Reuters cited Yevgeny Kogan, an investment banker and professor at Moscow’s Higher School of Economics, who noted that since records began in 2002, there had been only five months when the business activity indicator had deteriorated more rapidly.
He said a move of the indicator into negative territory had historically been associated with economic crises.
Peskov Says The Global Economy Is In A Dire State
Peskov was quoted in TASS, the government-owned and run news agency, as stating that while Russia’s current economic growth rate is insufficient, the global economy is also in a rather dire state, and Russia is not insulated from global developments.
“The pace of growth, as the president has repeatedly said, is insufficient. It has been acknowledged as insufficient.
But the global economy as a whole is currently in a rather dire state, including due to the consequences of conflicts such as the one around the Persian Gulf.
“Countries in Western Europe and some Asian nations are also experiencing economic difficulties. Of course, Russia cannot remain isolated from these developments,” Peskov said.
“Yes, the situation in the global energy market is extremely volatile and impacts all countries,” he added, adding that “at the same time, there is currently no reason to doubt our country’s macroeconomic stability.”
Russia’s benchmark MOEX stock index fell more than 4 percent on Monday, hitting its lowest level in more than three years and extending a 15-week decline.
Peskov Mirrors Russian Central Bank Deputy Quotes
Peskov’s comments are a repeat of what Russian central bank Deputy Governor Filipp Gabunia said in June: “Vulnerabilities in the financial sector are not critical,” stressing that banks’ capital cushion was at the highest level in three years, while corporate bad loans had, at 4 percent, not changed during the last year and a half.
However, a report disputed that number, stating that 10 percent of current loans are in doubt, while some banks put the figure as high as 15 percent.
“Russia’s economy is stagnating but the dominance of the state and defense spending means there is no immediate financial crisis to hand,” said Chris Weafer, a Russia expert at consultancy Macro Advisory.
“Asia ignores sanctions. So the idea that a fresh round will tip Russia into crisis is wishful thinking,” he said, adding that defense spending was keeping unemployment low and wages high.
State Intelligence Report Describes The Issues With Russia’s Banks
Reuters was able to get a close look at this report, which they wrote is titled “Note on the probability of a banking crisis in Russia in 2026”, said banks have been pushed by Kremlin officials to give subsidized loans to defense companies, homebuyers, and others, in an attempt to boost the economy and fund the war effort.
It also cited state-backed credit programs, loan restructurings, and government support that masked the banks’ vulnerability.
“The situation creates the illusion of a dynamic economy that, in reality, conceals an explosive situation which an economic shock, such as an ambitious package of sanctions against banks … could trigger,” said the report.
With Russia’s economy teetering, its banks are now encumbered with bad debts.
Many fiscal analysts believe that the situation is far worse than official data would suggest, and the country may already be in recession.
Prices Are Rising, Citizens Cutting Spending
The war in Ukraine and the ever-increasing drone attacks on Russia’s gas and oil infrastructure have caused shortages of gas across the country.
The drone strikes, Ukraine’s Foreign Intelligence Service reported, are causing rising prices and slowing household incomes, forcing more Russians to reduce spending on food, clothing, and other everyday expenses.
According to the agency, 81 percent of Russians are now cutting grocery spending, while many have also reduced purchases of clothing, restaurant meals, and other discretionary items as inflation and wartime costs continue to weigh on household budgets.
“Everyone Is Used To It”
Another person who is not outwardly concerned is Taras Skvortsov, chief financial officer of Russia’s largest bank, Sberbank.
“All major banks are already under sanctions … and when they were introduced in 2022, there was stress,” he said to Reuters.
“By 2026, everyone will have become so used to it. Many clients of the sanctioned banks do not even know about sanctions,” he added.
Despite this, the intelligence report states that Russia’s banks could become increasingly susceptible to external economic shocks as lenders continue to finance the country’s wartime economy while absorbing significant financial risks.
Russia’s economy, despite the denials by the Kremlin, is in bad shape. Russia has been forced to stop exporting gas, oil, and diesel and begin importing gas from India and Belarus. Rationing has been instituted in many areas.
The gas and oil industry has always served as a cushion for the economy, already weakened by Western sanctions. That cushion is gone, and the economy needs a boost before additional woes begin.
About the Author: Steve Balestrieri
Steve Balestrieri is a National Security Columnist. He served as a US Army Special Forces NCO and Warrant Officer. In addition to writing on defense, he covers the NFL for PatsFans.com and is a member of the Pro Football Writers of America (PFWA). His work was regularly featured in many military publications.
