Putin ally issues dire warning about Russian economy

“The Russian economy is not only stagnating, it’s declining,” says London Business School's Richard Portes, in response to fresh warnings from one of President Vladimir Putin’s closest allies.

German Gref, CEO of Sberbank and former economy minister, admitted this week that Russia has slipped into “technical stagnation” and urged the Central Bank to slash interest rates more drastically than planned. But Portes argues that monetary policy alone cannot address the entrenched weaknesses of a war economy.

“Gref cannot say openly that the stagnation is caused by the dysfunctionalities of war and the fall in labour supply,” Portes told Newsweek. “The engines of growth have dried up. Russia is facing a serious depletion of its labour force, exacerbated by troop losses in Ukraine and the exodus of draft-age men. At the same time, the shift from producing for consumption to producing for defence fuels inflationary pressure.”

Russia’s Central Bank has kept its key rate at an exceptionally high 18% to contain inflation, which is running at nearly 9%. Gref said a cut to 12% was needed to spur growth, far below the 14% end-year target currently under discussion.

Despite headline growth of over 4% in both 2023 and 2024, much of it was driven by record military spending. Russia’s Finance Ministry now expects GDP growth to fall sharply to 1.5% in 2025, as sanctions, labour shortages and soaring credit costs squeeze the economy.

For Portes, the outlook is clear: “Russia’s war economy has run out of momentum. Interest-rate cuts won’t solve the underlying problems.”

Read the full article here: Putin Ally Issues Dire Warning About Russian Economy - Newsweek, by Brendan Cole, 4 September https://lnkd.in/eMCcJzq5