Russia's economy on the brink: recession looming, Putin under pressure!

Russia's economy on the brink: recession looming, Putin under pressure!

Russia's economy is facing a critical turning point, as Economy Minister Maxim Reshetnikov warned at the International Economic Forum in St. Petersburg. In his speech, he emphasized that the current economic situation is showing a significant slowdown and that entrepreneurs are on the verge of recession. This is compounded by high interest rates, which make investments increasingly unattractive. According to Reshetnikov, investments in the third and fourth quarters could be below the level of the previous year. He called on the Russian central bank to provide more support for the economy.

In his speech on June 20, Vladimir Putin also spoke about the situation of the Russian economy and the challenges it is currently facing. Central Bank chief Elvira Nabiullina, however, justified the monetary policy and pointed out that the economy had grown despite the sanctions, which was mainly due to import displacement programs and existing capital reserves. While the central bank raised the key interest rate to 21 percent in October 2024, it recently cut it back to 20 percent to counteract the looming recession.

Impact of sanctions

The Russian economy initially remained relatively stable after the start of the Ukraine conflict, particularly due to a switch to war production. While the defense industry has seen a significant increase in the production of ammunition and weapons, civilian sectors are struggling with high costs, staff shortages and technical backlogs, which are further exacerbated by international sanctions. The construction and real estate sectors as well as the automotive industry have been severely affected as many Western companies and suppliers have left the Russian market.

The impact of military policy on the economy cannot be overlooked. Russia's military spending is expected to increase by 25 percent to 13.5 trillion rubles in 2025. This spending now accounts for 7 to 8 percent of gross domestic product, a record in post-Soviet history. Despite reduced growth in public revenue from energy exports, high government demand is driving a so-called war boom in certain sectors of the economy. However, this development has also led to a significant increase in inflation, which was recorded at 9.7 percent in October 2024.

The challenges of the future

At the same time, the Russian economy is suffering from an acute labor shortage. Although unemployment is relatively low at 2.4 percent, many positions remain unfilled. Around 520,000 new jobs have been created in the defense industry since 2023. However, production in this sector is growing more slowly because skills shortages and Western sanctions make it difficult to set up new plants. As a result, Russia is increasingly importing weapons from countries such as Iran and North Korea because its own production is not sufficient.

The economic growth outlook for 2025 is estimated at a meager 0.5 to 1.5 percent, a significant departure from previous forecasts. Tax increases on high earners and companies are planned to ease the burden on state coffers, while social spending is falling due to a decline in the number of pensioners. The key challenge remains balancing military needs and much-needed economic stability, while pressure from external sanctions and internal problems continues to grow.

The Russian economy is therefore at a critical point, the development of which is decisively influenced by both internal and external factors. How Russia responds to this turning point will be of great importance for the years to come.

fr.de reports that the current situation poses significant risks.

swp-berlin.org also provides analysis of the long-term consequences of Russia's military and economic strategies.