Putin praises economic growth - but the war is slowing everything down!

Putin praises economic growth - but the war is slowing everything down!

Vladimir Putin gave a speech at the International Economic Forum in St. Petersburg today and discussed Russia's current economic challenges. He highlighted the country's economic growth of over 4 percent in the past two years, pointing to a gross domestic product (GDP) that grew 5.6 percent in 2021 but suffered a decline following the invasion of Ukraine. Growth is currently reported at 4.1 percent, which is considered considerable in the context of international geopolitical tensions, but is also dampened by high inflation rates and other economic problems. Loud ZDF Inflation in Russia is stable at around 9.6 percent, while the central bank is aiming for a target of 4 percent.

Putin emphasized the role of the defense industry as a driving force behind this economic growth. However, other sectors, such as agriculture, services and construction, are struggling under the conditions of a war economy. In the construction and real estate sector, one in four construction companies is threatened with bankruptcy; Challenges such as high costs, staff shortages and technological backwardness are particularly serious here. The key problems have been exacerbated by increased military spending in recent years.

Defense budget and military spending

Significant increases in military spending have been announced for 2025. The defense budget is expected to increase by 25 percent to 13.5 trillion rubles (approx. 130 billion euros). This means that military spending reaches around 7-8 percent of Russia's GDP, which is a record in post-Soviet history. This additional spending was previously financed by high revenues from energy exports, but since 2023 these revenues have been falling, putting a strain on the state's financial resources. While the public purse runs deficits of around 2 percent of GDP, tax increases and rising import fees are being considered as measures to stabilize the budget, such as SWP reported.

The defense industry has hired around 520,000 new workers since 2023, although 160,000 positions remain unfilled. Despite the increased salaries, which have increased above average in the industry, production is hampered by a lack of skilled workers and Western sanctions. Putin promised to keep the population happy with better-paying jobs to cushion the hardships caused by the war and migration.

Economic outlook and challenges

Putin's speech also included a reference to global economic trends. He described globalization as a failure and addressed participants from the Global South. At the same time, the economic outlook for 2025 is under pressure. The central bank is increasingly struggling with high inflation, which was 9.7 percent in October 2024. This situation led to an increase in the key interest rate from 7.5 percent to 21 percent, the highest level in 25 years. High interest rates could lead to corporate bankruptcies and increase financial difficulties for households.

Financial strains are further compounded by the possibility of new sanctions and a fall in oil prices, which could trigger a new recession. The Finance Minister has already stated that Russia is on the verge of recession. Despite all these challenges, warfare remains unaffected by economic difficulties and production capacities must be increased to continue the war with the same intensity.