Economic Minister Maxim Reshetnikov warned Thursday that Russia's economy is about to fall into a recession and that monetary policy decisions will now decide whether to belong to one.
Reshetnikov conveyed a faint message at the Russian Annual Exhibition Economic Forum in St. Petersburg, northern Russia, an event sometimes called “Russia Davos” designed to promote investment in the Russian economy.
He urged the central bank to support the economy in terms of monetary policy, as the Kremlin said that while it was a conscious decision, the current key interest rate (20%) was hurting the economy.
Russia lowered interest rates for the first time this month since 2022, but borrowing costs remain close to record levels, and for months companies have complained that high interest rates stifle investment.
Central banks have maintained high prices to curb inflation in an overheated economy, which focuses on the demand for Ukrainian military combat.
“Based on these numbers, there is cooling, but all of our numbers are in the rearview mirror,” Reshetnikov said in a group at the St. Petersburg International Economic Forum.
“Based on the current sense of business and business metrics, in my opinion, we are already on the verge of a recession.
Reshetnikov clarified that a recession was not inevitable, and later told reporters that avoiding a recession would depend on policy decisions, first of all, interest rates.
“I didn't predict a recession. I said we were on the edge. From now on, it all depends on our decisions.”
Reshetnikov said that besides keeping confidence in Russia's 4% inflation target, he favors “give the economy something to love”, addressing Central Bank Governor Elvira Nabiullina, who is on the same panel.
President Vladimir Putin urged his economic officials in March not to freeze the Russian economy, as if it were indoors in “cryotherapy” and the cost of borrowing was high, and Reshetnikov had previously warned of the risk of “hypothermia”.
Get the daily national news
Get news, politics, economics and current events titles delivered to your inbox every day.
For now, the outlook does not look promising.
The Center for Macroeconomic Analysis and Short-term Forecasting, an economic think tank close to the government, said this week that most civilian sectors are in a recession and there is no sign of what can start economic growth.
“It seems that stagnant economy has formed,” the think tank analyst wrote.
At Thursday's meeting, Central Bank Governor Nabiullina said that the slowdown in GDP growth is currently a “overheating road”. Finance Minister Anton Siluanov said Russia is cooling, but “summer always follows the cold.”
Alexander Vedyakhin, the first deputy chief executive of Russia's largest lender Sberbank, said in an interview with Reuters this week that strict monetary policy is posing a risk of overcooling and said lower interest rates are needed 12-14% to restart investment loans.
The economy has suffered a series of sanctions after the Kremlin sent troops into Ukraine in February 2022, and so far the economy has outperformed the forecast. High defense spending has fueled growth, which has lowered unemployment despite rising inflation. Meanwhile, wages have risen to keep up with inflation and make many workers better.
The massive recruitment bonuses for the death benefits of military enlisted and those killed in Ukraine also bring more income to poor areas of the country. But in the long run, inflation and insufficient foreign investment remain a threat to the economy, leaving a question mark on the time the military economy can continue to move forward.
Economists warn that pressure on the economy continues to increase due to lack of investment in sectors other than the military.
(Reuters' report in St. Petersburg, Daria Kolsenskaya of London and Elena Fabrichnaya of Moscow; writings by Alexander Marrow; edited by Andrew Osborn and Toby Chopra)
– Additional documents from the Associated Press
& Copy 2025 Canadian Press
