Russia's economy in crisis: Recession threatens despite growth!

Russia's economy in crisis: Recession threatens despite growth!

Russia's economy is on the brink of recession, as Economy Minister Maxim Reshetnikov warned at the International Economic Forum in Saint Petersburg. The current situation is further complicated by a decrease in investments and high interest rates, blamed by the Central Bank. Uncertainty has grown, especially since 2022, when the key interest rate was cut for the first time. The key interest rate of 21 percent was recently reduced to 20 percent, but many believe this is not enough to improve the investment climate.

Reshetnikov was critical of the Central Bank and stressed the need to urgently revitalize investments. He warned of an impending collapse as high interest rates discourage companies from making risky investment decisions. Central bank chief Elvira Nabiullina responded to the allegations by also pointing to expected difficulties in economic development.

Criticism of monetary policy

The central bank's monetary policy, which is often criticized as being too restrictive, contributes to economic uncertainty. While many companies are experiencing rising wages due to a shortage of skilled workers, they are largely passing these higher costs on to their customers. This increases pressure on prices, especially in an environment where inflation is estimated at 7 to 8 percent in 2023.

The impact is already being felt as prices for staple foods, particularly potatoes, have risen sharply due to a poor harvest. While food prices are rising, the ruble has gained about 40 percent against the dollar since the start of the year, making imported goods cheaper. Nevertheless, the poorer population remains particularly affected by the sharp rise in food prices.

Forecasts and economic growth

Despite the challenges, Russia's economy has been growing for two years, partly due to import displacement programs implemented in response to Western sanctions. The central bank forecasts growth of 1 to 2 percent in 2025 and 4.3 percent in 2024. President Vladimir Putin has also taken measures to shift the country to a war economy, bringing additional uncertainties.

Crop prospects play a crucial role in the central bank's considerations. The shift in economic focus and the associated adjustments could have a decisive impact on investment opportunities and thus economic growth. Overall, the situation is tense and both Minister Reshetnikov and the Central Bank face major challenges on the path to stabilizing the Russian economy.

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