Russia's economy on the brink: Minister warns of impending recession!

Russia's economy on the brink: Minister warns of impending recession!

Russia's political leadership is increasingly forced to issue alarming messages about the state of the national economy. Economy Minister Maxim Reshetnikov warned that Russian markets are on the verge of recession. He described the current economic situation as a significant slowdown and expressed particular concerns about an impending collapse in investment. In this context, criticism of the central bank's monetary policy is increasing. Reshetnikov made it clear that the current interest rate of 20 percent demotivates entrepreneurs to make necessary investments. The central bank recently lowered the key interest rate from 21 to 20 percent in order to stimulate the economy, but without achieving any significant success.

In addition, the reported South German newspaper, that the forecast for investments in the third and fourth quarters is predominantly pessimistic because they are expected to lag behind the previous year's level. Elvira Nabiullina, the head of the central bank, defended herself against accusations of incorrect monetary policy and admitted that the economic difficulties are partly due to the exhaustion of many resources. Despite sanctions and geopolitical tensions, the Russian economy has grown over the past two years on the basis of import displacement programs and has been heavily dependent on money from the prosperity fund as well as existing capital reserves in the banking system.

Critical situation of state finances

Economic experts make it clear that the Russian economy is currently suffering from significant budget problems. President Vladimir Putin is aware of these challenges and plans to increase military spending to stabilize the economy. The plan is to increase the military budget by 22 percent to a total of 13.2 trillion rubles for 2025. The plan stipulates that military spending will account for 40 percent of total government spending, meaning that other essential areas such as education, health care and social policy will have to take a major step back.

There are currently few lifelines to stabilize the economy. According to the Frankfurter Rundschau Experts have warned that Putin's solutions are only temporary and without the ongoing conflict in Ukraine, Russia could immediately slip into recession. Oliver Kempkens, a former manager at Sberbank, warned that an abrupt end to the Ukraine war could lead to economic collapse. His assessment is that the Russian economy will not slip into recession before 2027, a forecast that takes into account the impact of Western sanctions and their possible lifting when the conflict ends.

Military spending and its consequences

The dependence of the Russian economy on the Ukraine conflict raises additional questions. Economists fear that Russia will remain in a protracted war for economic reasons to maintain current stability. High government spending is currently supporting the economy, but at the same time preventing a slowdown in affected sectors. This situation could increase current instability if the conflict were to end.

The situation in Russia makes it clear that despite the availability of resources and a clear political will for stability, the economic challenges are difficult to overcome. The path forward may require a new growth model to counter the looming dangers of recession.