Economic slowdown threatens Russia's war effort amid soaring inflation
- Russia's economy has seen significant growth but is now facing its first major slowdown since the invasion of Ukraine began.
- High wages and military spending have driven inflation above 10%, prompting economic leaders to implement measures to control it.
- The government aims for a soft landing to maintain stability while continuing military operations, but can this be achieved without public discontent?
Russia's economy is facing an unprecedented slowdown after more than 40 months of war footing due to the invasion of Ukraine. Elvira Nabiullina, the country’s top economic minister, recently indicated that the economy has been growing robustly, primarily driven by a surge in defense spending and high wages for workers in the defense industry. However, this growth has led to inflation exceeding 10 percent in the first half of 2025, prompting Nabiullina to raise interest rates to control the rising prices and caution against an overheated economy. Despite the rapid economic progress, there are concerns about the sustainability of growth as the government seeks to maintain a balanced approach during this turbulent time. German Gref, the head of Sberbank, emphasized the multitude of challenges faced by the economy, describing it as a 'perfect storm.' The current economic trajectory raises questions about political implications; while rising inflation and an economic correction could disrupt household budgets, they may also lead to discontent among Arabs who have enjoyed stable incomes. President Vladimir Putin has backed Nabiullina's policies aimed at achieving balanced growth, thus showing his commitment to stabilizing the economic situation amidst ongoing military expenditures. The ramifications of these economic adjustments are significant, as the Kremlin plans to allocate about 13.1 trillion rubles for defense in 2025, virtually ensuring the continuation of military operations despite increasing economic hardships. Experts speculate that the government's focus on maintaining military readiness may come at the cost of social stability, as households accustomed to higher disposable incomes grapple with economic tightening. This delicate situation poses risks not only for the economic landscape but also for the political stability of Putin's administration as public sentiment could shift against the ongoing military engagements. In conclusion, while Russia's economy had previously shown extraordinary resilience, the current combination of rising inflation, economic correction, and the pressure of maintaining wartime expenditures creates uncertainty about the future. The political landscape may transform significantly if the government does not manage to soften the economic landing, leading to potential backlash from citizens faced with worsened financial circumstances.