In brief
As Russia's wartime economy begins to falter with stagnant growth and increased inflation, economic experts warn of impending stagflation, complicating the Kremlin's ongoing military operations.
Russia's economy, which was propelled into overdrive due to the ongoing war with Ukraine, is now experiencing a significant slowdown that is creating rifts among the country's economic elites as they grapple with the evolving implications. Official data shows that many civilian industries in Russia ceased to expand or even started to contract as of October, a worrying trend for a nation nearing the fourth year of conflict.The ruble recently plummeted to its most vulnerable state in two years, and business owners state they are encountering difficulties in securing new loans and collecting payments from clients. In response to these challenges, the central bank implemented a drastic increase in its benchmark interest rate, raising it to 21 percent—the highest since the collapse of the Soviet Union—in an effort to curb inflation.Additionally, the central bank has revised its economic growth forecast for 2025 down to a modest 0.5 to 1.5 percent, a considerable drop from the previous estimate of 3.5 to 4 percent for the current year. This slowdown in growth is particularly striking given that the government continues to inject unprecedented amounts of funding into the economy to support its military expenditure.Economists and officials have raised alarms about the potential onset of stagflation, a troubling scenario characterized by rapidly rising prices coupled with stagnant economic growth. Over the past three years, Western nations have imposed rigorous economic sanctions on Russia, a form of punishment directed at President Vladimir V. Putin for the initial invasion of Ukraine, further straining the Russian economy.
