Russia's economy on the brink of recession: threat of recession!

Russia's economy on the brink of recession: threat of recession!

In an alarming assessment, Russia's Economy Minister Maxim Reshetnikov warned of an impending recession at the International Economic Forum in St. Petersburg. Since the escalation of the Ukraine conflict, the country's economic situation has visibly cooled down, and many entrepreneurs believe that the red line towards recession has already been crossed. High interest rates are significantly dampening the investment mood, and in the third and fourth quarters investments could even be below the level of the previous year. Skeptical voices are increasing because not only companies are feeling the effects, but government authorities are also being forced to take action.

On June 20, Vladimir Putin gave a speech at the same forum in which he addressed the challenges of the economic situation. Reshetnikov's demand for the Russian central bank to provide more support for companies is particularly explosive. For her part, central bank chief Elvira Nabiullina defended the monetary policy, which is said to have led to economic growth despite the sanctions, supported by import displacement programs and capital reserves.

The arms industry remains a driving force

However, while parts of the civilian economy face enormous challenges - from high costs and staff shortages to technological lagging - the defense industry is thriving. Not only did it significantly increase its production volume, it also created 520,000 new jobs. Nevertheless, 160,000 positions remain unfilled, indicating an acute shortage of skilled workers. Critics complain that the positive development in GDP does not reflect actual economic performance or produce new goods for the population.

The numbers also support this version: military spending will increase significantly in 2025, as the defense budget is to be increased by 25 percent to 13.5 trillion rubles, about 130 billion euros. This spending accounts for 7-8 percent of Russia's GDP - a record in the country's recent history. In 2021 the proportion was still 3.6 percent.

Economic challenges in the civil sector

However, the economic challenges are increasing day by day. Inflation was 9.7 percent in October 2024 and is influenced by sanctions and falling export prices. Families are struggling to cope as the central bank has raised interest rates to control inflation. These high interest rates could not only drive numerous companies into bankruptcy, but also pose major problems for household finances.

There is also a worrying trend in agriculture. Putin's ambitious plans to increase grain harvests are in jeopardy as yields have fallen significantly in recent years. Deputy Prime Minister Dmitry Patrushev warns of the impending decline and speaks of a necessary correction. We still seem to be a long way from a harvest of 170 million tonnes by 2030.

An end to the crisis is not yet in sight. The optimism that prevailed before the wave of inflation could be further dampened by the strict economic conditions. Even if warfare continues unaffected by these challenges, it remains to be seen how long the Russian population can continue to withstand the economic setbacks. Access to essential imports is essential for the defense industry while civilians fear for their economic security.