PressSplit
Is the facade gradually crumbling? Putin himself now apparently admits that the Russian economy is struggling under the current conditions.
Moscow – Kremlin dictator Vladimir Putin’s list of problems is long. The Russian economy is doing worse and worse. Until a few months ago, the Russian president had painted an optimistic picture of the economic situation. But now the challenges are so great that he can no longer ignore them and begins to have doubts.
Russia’s economy under pressure: Central bank wants to raise key interest rate again due to inflation
Putin’s concerns may be justified. The latest example is the stubborn inflation that has been weighing on Russia’s economy for months. To combat this, the Russian central bank wants to raise its key interest rate again, from 19 to 21 percent. According to the news agency AFP This is the highest rate since 2003 – Russia has not had such high key interest rates for more than 20 years.
The bank blamed this development primarily on the “explosion” in military spending, which is expected to reach record levels again in 2025. “Additional government spending and the associated expansion of the budget deficit in 2024 will have an inflationary effect,” it quoted AFP the central bank. In the event that the inflation rate does not fall again, the key interest rate will have to be raised further.
Since the beginning of Russia’s war of aggression against Ukraine, Vladimir Putin has been striving to push back the West’s political and economic isolation of his country. © ITAR-TASS/Imago
However, Vasily Astrov, an expert on the Russian economy at the Vienna Institute for International Economic Studies, has doubts about the magazine Newsweek the central bank’s approach to raising the key interest rate. This measure would only cause private investment to stall, which in the future will exacerbate the very problem of supply-side constraints that the central bank and many others complain about, he said.
Russia’s economy worries Putin: “There are still difficulties”
Putin now also seems to understand the seriousness of the situation. In a recent video address with top officers, he said: “There continue to be difficulties and imbalances in the economy.” These are primarily due to the difficult conditions “in which we are building industrial, agricultural and financial potential,” the quoted magazine Newsweek the president. Putin also cited problems caused by “external sanctions” as well as “shortages of personnel and technology, logistics.” “These factors are reflected, among other things, in the dynamics of consumer prices.”
Central Bank Governor Elvira Nabiullina also spoke out Newsweek attended the meeting. Nabiullina is one of the Russian economists who have repeatedly warned Putin that the Russian economy was overheating.
Russia’s economy is supposedly growing – but the growth miracle is coming to an end
So far, Putin has tried to hold on to presumed economic growth. Russia’s economy is growing despite sanctions, according to the Kremlin’s tenor. Russian Finance Minister Anton Siluanov said on April 19, 2023 that Russian GDP is expected to grow by 3.6 percent in 2024, reaching the growth rate of the previous year. After the full-scale invasion of Ukraine began in 2022, the Russian economy experienced a shock and subsequent decline.
The International Monetary Fund has also forecast stronger growth in the Russian economy of 3.6 percent. However, it acknowledged that a slowdown is expected in 2025. “What we are currently seeing in the Russian economy is that it is running into capacity constraints.” The Russian economy is overheating, IMF Europe chief Alfred Kammer said on October 24.
There are also other signs that the Russian economy’s growth boost is short-lived. The main reason for the growth is the high government spending on the war in Ukraine. But the excessive investments are not sustainable for Russia’s economy in the long term and condemn Putin to a long war against Ukraine, because military investments are currently keeping Russia’s economy alive. (bohy)
