Bloomberg: Putin’s wartime economy braces for a soft, bumpy landing

Russia’s economy has so far managed to grow despite the war in Ukraine, buoyed by high wages that have helped suppress public dissent. However, almost three years on, there are signs that the proverbial chickens will come home to roost, Bloomberg reports.  

“A relatively good period for the Russian economy, which was based on previously accumulated resources, is over,” said Oleg Vyugin, an economist and former top central bank official. “High inflation eats away at all that seemingly short-lived success.”

Despite the continued optimism in Moscow and other major cities, where restaurants remain busy and luxury stores thrive, a combination of record-high interest rates and persistent inflation threatens to derail expectations of another year of slow but war-fueled growth.  

Yet, it is increasingly difficult to gauge the true state of Russia’s economy since many sources of publicly available information have been shuttered amid signs of overheating due to inflation, lower productivity and surplus war spending that is forcing Moscow to print more money. 

Russia’s safety cushion – the National Wealth Fund – has plunged from $140 billion in 2022 to $53.8 billion in early December. Compounding the problem is that most of the remaining funds are in the Chinese yuan, which hampers the ability to finance imports and military expenditures. 

Additionally, Russia is confronted with sanctions, a recently weakened currency, a muddied outlook for oil prices and the prospect that its biggest trading partner, China, won’t shake off significant economic troubles of its own.

The central bank is forecasting a sharp decline in growth in 2025 to as low as 0.5 percent, down from an estimated 3.5-4 percent last year, and sees inflation returning to its 4 percent target only in 2026.

One of the most significant risks to Russia’s economy in 2025 is the potential drop in oil prices.  

Meanwhile, Ukraine ended transit of natural gas across its territory, and while the economic effect will likely be muted, it could still cost Russia about 0.2% to 0.3% of gross domestic product, according to various analyst estimates.