For almost three years, it seemed like everyone was getting rich from the war. Now, it’s clear there is a price to pay.
A Russia passes by economic difficulties. A inflation is raising the prices of essential goods such as milk, potatoes and butterwhile the real estate market faces difficulties due to rising mortgage interest rates.
More than after the start of the invasion of Ukraine, the Russian economy reoriented itself to sustain the war effort and face Western sanctions, with this “war economy” to have mixed results.
Government spending on military production boosted the growth of the GDP, reaching 3,6% last year, despite the sanctions. This year, projections point to a slight increase to 3.9%.
Unemployment fell to a historic low of 2.4%, with high wages offered to soldiers and war widows increasing incomes in poorer regions, highlights the.
However, this growth it has a cost.
Inflation soared, leading the Central Bank to increase interest rates to 21%the highest level in two decades.
O real estate market is in declinewith mortgage rates keeping buyers away.
A real estate agent told: “The real estate market died“.
Everything reflects a broader economic slowdown. Experts warn that labor shortages, rising wages and growing corporate debt are putting pressure on companies, potentially leading to a wave of bankruptcies.
The Central Bank’s aggressive fiscal policies have drawn criticism from business leaders such as Rostec’s Sergei Chemezov and steel magnate Aleksei Mordashov, who warn that high interest rates stifle industrial growth and discourage investment.
The Central Bank foresees a slower growthwith GDP expected to shrink between 0.5% and 1.5% in 2025.
As concerns with — a combination of stagnant growth and rising prices — are increase.
A recent government report warned that current interest rates could precipitate a economic recession.
The head of the Central Bank, Elvira Nabiullina, tried to reassure critics, predicting a slowdown in inflation in the coming months.
Experts suggest that the government can tolerate bankruptcies as a means of controlling inflation and increasing military recruitment.
“For almost three years, It seemed like everyone was getting rich from this war. Now, it’s clear there’s a price to pay“, summarizes Janis Kluge, from the German Institute for International and Security Affairs.
