-- Russia’s economy is at a critical juncture. It is not an understatement to say that Moscow needs these Alaska peace talks with the Trump administration on Friday to end the Ukraine war as much as Kyiv does.
Mixed indicators in June signal that the overall economy seems relatively stable for the near term, but recession may be on the horizon. It may be trying to hide it, but Moscow can no longer obscure the true costs of the war, which are in part to blame for current conditions.
After the invasion of Ukraine in 2022, the Kremlin initially used budget spending, counter-sanctions measures, and credit growth to boost investment, which were largely successful as the economy grew near 4 percent in 2023 and 2024. However, in late 2024, the measures used to secure a war economy led to economic overheating, wage growth, and rampant inflation.
Now the economy is experiencing decline after more than two years of solid growth. Contraction has been driven by falling activity in mining, trade, real estate, and leisure — which parallel growth in agriculture, manufacturing, and public administration were not able to offset. As a result, the Russian Central Bank is predicting annual growth in 2025 between 1 and 2% and growth near 1% in 2026.
Despite the Central Bank’s optimism, the IMF recently cut its own 2025 projection for Russian GDP growth to 0.9% and 1% in 2026.
Russia’s current economic slowdown may be viewed as an opportunity for policy makers in the United States and Europe to escalate pressure on Russia. However, it is important to note that these same policymakers have overestimated Russia’s economic weakness since 2022 with negligible results on Russia’s management of the war in Ukraine.
In other words, don't take the wrong lesson from this.
Please read in full at RS today: https://responsiblestatecraft.org/russia-economy-war/