Media: Situation In Russian Economy Getting Out Of Control
- 6.01.2025, 22:55
Moscow has big problems.
The Russian economy, caught up in war and sanctions, continues to lose stability, writes Neue Zürcher Zeitung (translated by dialog.ua). The Kremlin's policy aimed at ensuring defense production at the expense of the population's well-being creates serious threats of stagflation — a combination of high inflation and economic stagnation.
In December, the Central Bank of Russia unexpectedly left the key rate at 21%, the highest since the beginning of the century. Although analysts expected it to be raised to combat inflation, which exceeded 9% in annual terms, the decision is explained by growing pressure from companies and officials. High interest rates on loans are strangling businesses, forcing them to get into debt, while war costs are displacing resources from the civilian sector.
Inflation rising and the ruble weakening
In recent months, the Russian currency has sharply depreciated, and the cost of imports has increased due to sanctions and economic isolation. The dollar and euro have reached their highest levels since March 2022, making imports expensive. According to analysts, inflation in 2025 will remain above 8%, which is significantly higher than the previously announced forecast.
In reality, prices may grow even faster than officially reported. This confirms the discrepancy between inflation and the key rate, which undermines confidence in statistics.
In 2024, Russian GDP grew by 4%, but in 2025, analysts expect a slowdown to 1.5%. The main driver of growth — defense production — has reached its limit. Fewer new combat vehicles are produced than old equipment is repaired.
The Kremlin, however, does not intend to curtail military spending, despite the weakening economy. The country's financial reserves, although shrinking, are still sufficient to support current spending. This increases fears that the Russian authorities will continue to ignore the crisis signals of the economy in favor of a military adventure.
Stagflation on the horizon
Russia's economic model is increasingly losing its stability. Expensive loans, labor shortages caused by mobilization and migration, and a focus on defense spending are driving the country toward stagflation. A weakening ruble and low oil prices are adding to the problems.
Instead of investing in long-term projects or modernization, the Kremlin continues to spend resources on maintaining the war. Meanwhile, Russians face rising prices for basic goods and stagnating incomes, fueling their discontent.
The Russian economy enters 2025 with serious structural problems caused by military policies and sanctions. Citizens’ well-being is being sacrificed to maintain the military machine, and growth prospects are becoming increasingly illusory. But despite the economic difficulties, the Kremlin remains focused on its military goals, leaving the population to suffer the consequences.