Russia’s economic system is heading towards a destiny worse than recession, pro-Kremlin economists say

• Russia is going through the mounting threat of stagflation, a suppose tank tied to the Kremlin mentioned.

• The nation’s excessive rates of interest will set off an financial a downturn whereas inflation stays excessive, TsMAKP mentioned.

• Tight financial coverage is costing Russian enterprise profitability and dangers spurring bankruptcies.

Moscow’s failed try to stamp out inflation is driving the nation in direction of its worst-case financial situation, in response to a Russian suppose tank tied to the federal government.

On Wednesday, TsMAKP condemned Russia’s tight financial coverage, warning that top rates of interest will set off an financial downturn. With inflation nonetheless working scorching, that might create a nightmare consequence for Kremlin officers: stagflation.

“As a result of the central bank’s actions, the Russian economy is effectively facing the threat of stagflation — simultaneous stagnation or even recession and high inflation,” the federal government advising suppose tank mentioned, as translated by Reuters.

Latest nationwide and international tales

This situation, the place development is low and inflation excessive, is most feared by any central financial institution.

Stagflation is more durable to flee than a recession. When an economic system usually slows down, central banks can loosen rates of interest to revive exercise. But that choice disappears if inflation retains rising: rates of interest should keep excessive to chill value development.

Put merely, the Kremlin’s arms look like tied.

Russia’s central financial institution has already sensed the looming threat of stagflation, citing that value development remained stubbornly excessive within the first half of 2024 regardless of cooling home demand.

To that finish, the financial institution elected to boost Russia’s key rate of interest to a report excessive of 21% final month, and indicated extra to come back.

So far, nevertheless, excessive rates of interest have proven restricted affect on Russia’s inflation price, which hit 8.63% in September. Though annual inflation slowed to eight.54% in October, meals costs proceed to soar. That contains Russian staples such because the potato, which is up 64% this yr, as of November fifth.

Russian costs could appear largely detached to tight financial coverage, however the nation’s enterprise leaders are usually not. Sergei Chemezov, the CEO of the nation’s protection conglomerate Rostec, warned that report rates of interest have been costing companies profitability, and would set off nationwide bankruptcies.

“The current high level of the key interest rate and the indicated prospects for further increases have created a risk of economic downturn and a collapse in investments in the near future,” TsMAKP mentioned.

With the central financial institution now working within the shadow of stagflation, the worst should be forward. Data launched on Wednesday confirmed that Russia’s economic system slumped 3.1% year-over-year within the final quarter.

Story Continues