Russia's economy stagnates. The country could enter the recession due to high interest rates
German Gref, the CEO of the largest bank in Russia, Sberbank, warned that the economy is in stagnation and that if the central bank will not significantly reduce interest, the country will enter the recession.
Russia could enter the shutterstock photo recession
Russia's war economy increased by 4.1% in 2023 and 4.3% in 2024, much faster than G7 countries, despite several series of Western sanctions imposed after the invasion of Ukraine in 2022, but the growth rate slows down due to high interest, according to Reuters.
The record military expenses, the largest of the Cold War, have fueled inflation, causing the central bank to increase the key interest to 21% in October, the highest level since the beginning of President Vladimir Putin in 2003.
The central bank reduced the interest to 20% in June and then to 18% in July, but high -ranking officials launched several warnings on the fate of the economy, claiming that it remains affected by the huge cost of credit.
Speaking with reporters at the Eastern Eastern Forum in Vladivostok, a former Minister of Economy, said that in the second quarter the economy seemed to be in “Technical stagnation”.
GREF said that the expected interest reduction to 14% by the end of the year, from 18% at present, is not enough to revive the economy and suggested that only a reduction could stimulate recovery.
“It is important to get out of this period of controlled cooling of the economy, so that it does not turn into stagnation, because the revival of the economy will be much more difficult than its cooling.”he said.
GREF also said that the data of banks – received faster than official statistics – showed an increased slowdown, and the signs indicated that the growth was almost zero in July and August.
The Minister of Finance, Anton Siluanov, transmitted to President Putin last week that Russia's economic growth is expected to slow down 1.5% in 2025, well below the previous forecast of 2.5%, because the high interest imposed to reduce inflation have restricted loans.
The pressure on the central bank – led by the former colleague of Gref, Elvira Nabiullina – grows, being expected to reduce interest at the meeting on September 12, after a series of warnings from high -ranking officials and influential business leaders on the impact of high interest.
The problem of interest
GREF said he hopes that the central bank will take into account warnings and avoid the recession.
“At the current levels of inflation, the rate at which we can expect economic recovery is 12% or lower. So, somewhere on these levels, we will most likely see the recovery of the economy.”
Nabiullina's deputy, Alexei Zabotkin, said on Tuesday that Russia has made substantial progress in combating inflation, but the central bank is cautious in its evaluations to ensure that they are not premature or too optimistic.
The press reported in January that President Vladimir Putin is increasingly worried about the distortions in Russia's war economy, especially the reduction of investments by big companies due to high interest.
“The latest data suggest that the economy cools faster than expected.”said the Minister of Economy, Maxim Reschetnikov, whose staff completes the last series of macroeconomic forecasts for next year's budget.
In Putin's first two mandates, between 2000 and 2008, Russia's economy increased from less than $ 200 billion in 1999 to $ 1.7 trillion. Currently, Russia's nominal GDP is only $ 2.2 trillion, about the same level as in 2013, the year before Crimea annexation.
