Russia Has a Stagnation Problem
Key Points and Summary – Russia’s economy is in “technical stagnation,” according to the CEO of its largest bank, with growth near zero.
-The country is being battered by a perfect storm of high interest rates, a soaring budget deficit, and falling oil and gas revenues, a situation made worse by effective Ukrainian drone strikes on its energy infrastructure.
-While the Kremlin tries to manage a “managed cooling” of the economy, the pressure is mounting, leading experts to warn that Russia is struggling and that a prolonged recession is a very real possibility.
Putin Faces a New Economic Problem
In recent months, there have been whispers that Russia’s economy, after years of war and foreign sanctions, could be slipping into recession, or that bank failures were on the way sometime in the near future.
Now, the head of Russia’s largest bank is sounding the alarm as well.
Per the Moscow Times, Sberbank CEO German Gref has warned that Russia’s economy has lapsed into “technical stagnation” in the second quarter of this year. To blame for the slippage, Gref said at the Eastern Economic Forum, was the monetary policies of the Russian Central Bank, where interest rates at one point reached over 20 percent, although it has since dropped to 18 percent.
Gref added that growth, based on data from July and August, is near zero.
“A main driver, of course, is the key interest rate. According to our internal estimates [at Sberbank], the rate will be around 14% by year-end. Is that enough for the economy to start recovering? In our view, it is not,” Gref said at the forum, according to the Moscow Times. “Given the current level of inflation, recovery can only be expected when the rate is at 12% or lower.”
According to Kyiv Post, Gref spoke of the importance of avoiding stagnation.
“It is important to exit the period of managed cooling of the economy so that it does not turn into stagnation. Restarting the economy later will be much harder than cooling it down,” the bank CEO said at the forum, according to the report.
A Soaring Deficit
Moscow Times also cited data from the Finance Ministry, last month, that Russia’s budget deficit had reached 4.88 trillion rubles ($61.1 billion) between January and July, which blew past the project for the year in just over six months. The story added that Russia’s exports are in trouble, thanks to “weaker global oil prices, a stronger ruble and mounting Ukrainian attacks on Russian oil storage and pumping sites.”
In addition, per Kommersant, Russia’s oil and gas revenues fell in August for the fourth straight month, including a 36 percent drop from July to August.
As reported this week by Politico, drone strikes by Ukraine have begun to seriously hurt Russia’s gas exports and have even led to domestic shortages. Politico cited analysts who stated that “between 15 percent and 20 percent of Russia’s fuel production is now offline,” leading to Russia’s export ban being extended to September.
Cooling Faster
An Interfax report from the forum found similar sentiment, including the Ministry of Economic Development stating that the nation’s economy is “cooling faster than previously expected.”
Russian Minister of Economic Development and Trade Maxim Reshetnikov said at the forum that the ministry is “refining the macro forecast,” and will soon submit it to the Russian government.
“In the baseline scenario, a number of indicators will be adjusted for obvious reasons compared to the April scenario conditions. We are at the final stage and will submit the forecast to the government in the near future,” Reshetnikov said, according to the Interfax report. Interfax also quoted a source familiar with the progress of budget projections as believing that Russia’s GDP growth in 2025 could be dropped to 1.2 percent, compared to 2.5 percent in April.
Meanwhile, a CNBC analysis published in late August stated that while Putin appears not to value peace, the economic and energy woes may force him to start to.
“For the Kremlin, a brief period of low growth is tolerable, though combined with lower oil prices, it would reduce fiscal revenues. The main gamble is that the cooling of the economy won’t trigger a prolonged recession,” Alexander Kolyandr, senior fellow at the Center for European Policy Analysis (CEPA), said in a July analysis cited by CNBC.
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
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