Key Points – Russia’s wartime economy, which initially grew due to massive defense spending, is now showing clear signs of strain and is “on the brink” of a recession, according to its own Economy Minister Maxim Reshetnikov.
-Speaking at the St. Petersburg International Economic Forum, officials confirmed that the resources that fueled the initial “war Keynesianism,” such as the National Wealth Fund and capital reserves, are now largely depleted.
-While President Putin projects confidence, Russia faces stubborn inflation, high interest rates, and a slowdown in non-military sectors, raising serious questions about how long its war effort can be economically sustained.
Russia’s Economy Headed for a Crash? Ukraine War Spells Trouble
As Russia’s war with Ukraine continues to drag on, is the country’s economy in trouble? That was the indication from a recent economic conference in St. Petersburg.
According to Pravda Ukraine, which cited The Moscow Times, Russian Central Bank Governor Elvira Nabiullina spoke at the St. Petersburg International Economic Forum this week and stated that, in the newspaper’s words, “Russia’s wartime economic momentum is fading fast.”
“We experienced fairly high growth for two years because unused resources were engaged,” the central bank governor said at the forum. Those resources, Nabiullina noted, included the National Wealth Fund (NWF) and capital reserves.
Russian President Vladimir Putin also addressed the same forum, where he promised economic restructuring.
“Our economy is higher in quality, more complex and multifaceted,” Putin said in the speech. “Our strategic course is precisely to actively and consistently, step by step, change the structure of the national economy.”
According to The Moscow Times, Putin also highlighted the potential of the “BRICS” group of countries, which, in addition to Russia, originally included Brazil, India, China, and South Africa and has since added Indonesia and the United Arab Emirates.
Adding to the message was a “dramatic video” shown before Putin spoke. It was described by The Moscow Times as demonstrating “the history of global economic growth. The present day was depicted the United States as a declining financial hegemon, symbolized by an apocalyptic image of the Hollywood sign in Los Angeles engulfed in flames. In contrast, the BRICS group was portrayed as a new, more equitable driver of global growth in the 21st century.”
“On the Brink of Recession”
However, at the same conference, Economy Minister Maxim Reshetnikov warned that Russia’s economy was “on the brink of going into a recession.”
According to the Associated Press, which cited Russian business news outlet RBC, Reshetnikov told the forum that “the numbers indicate cooling, but all our numbers are (like) a rearview mirror. Judging by the way businesses currently feel and the indicators, we are already, it seems to me, on the brink of going into a recession.”
According to the AP, high defense spending during the first years of the war has led to economic growth, also keeping unemployment rates low.
“Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine also have put more income into the country’s poorer regions,” the report said. “But over the long term, inflation and a lack of foreign investments remain threats to the economy, leaving a question mark over how long the militarized economy can keep going.”
However, as Reshetnikov warned, the growth hasn’t spread to most of the economy beyond the military sector.
Signs of Slowing
Another analysis, released earlier this week by CEPA’s Alexander Kolyandr, stated that Russia’s economy is “losing altitude, not control.”
“The main drag is oil. Russian crude was trading at an average of $54.80 per barrel in April compared with $75 per barrel a year earlier. As a result, the fiscal revenue from oil is declining,” Kolyandr said in the analysis. The oil sector might see a rebound in the coming months due to escalating fighting in the Middle East, which could cause oil prices to rise.
“On a quarterly basis, it is already contracting. Signs of slowing are everywhere—from a decline in corporate lending to a growth in private deposits, from lower industrial output to contracting imports. Even the labor market, as overheated as it is, is showing some slight signs of declining demand.”
Ultimately, as with most things in Russia, it’s mostly about what Vladimir Putin wants.
“Russia’s spending plans will provide the battlefield for a protracted fight between industrialists hungry for more fiscal spending, and the Finance Ministry, which guards budgetary prudence,” he writes. “The final verdict lies with Vladimir Putin, but historically, he has been skewed towards fiscal stability rather than runaway spending.”
About the Author:
Stephen Silver is an award-winning journalist, essayist and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
The Best Tanks on Earth
AbramsX: The Tank the US Army Wants
Pingback: Russia's Economy Could Be Headed for Collapse - National Security Journal