Economic inflation surpassing 10% in Russia: Anticipation of a "gentle descent" from Putin
bloody hell, it's all going chaos with Putin's economic meeting, eh? 'stead of wasting time, let's dive right into it.
On Thursday, the wily ol' Putin held a meeting about the economy, might as well call it a powwow, seeing how serious it was. Looks like Putin spotlighted the global economy's messy state, with all those market fluctuations due to the ongoing US-China trade war and increased global competition.
You get it, mate? The world's economy is a hurricane, and we need to weather this storm, Putin said.
Now, any business luminary knows that opportunities come knocking during the storm. That's why Putin emphasized that it's not just about monitoring the situation and predicting changes – it's all about capitalizing on the chances that present themselves to propel homegrown productions, trade, exports, and the overall economy.
High Inflation
First off, we're dealing with a wildly high inflation rate at the start of the year—over 10 percent, to be exact. The goal for the year is to bring that down with a steady, moderate decline in price dynamics to ensure stable economic growth rates while keeping unemployment levels low. They're gunning for that "soft landing" – stable growth with a reduction in inflation.
GDP Growth
The GDP growth stood at 1.9 percent in the first two months of the year, but the processing industry is really showing some life—up by a whopping 5 percent.
Construction Issues
Unfortunately, the number of new construction projects launched by developers is dwindling, and that's a concern since construction rates directly impact housing affordability. Lower new project rates negatively impact related industries, from building materials to furniture and appliances. The government has already made some decisions to address this issue.
Shrinking Credit Portfolio
The credit portfolio of banks is decreasing as well, with the volume of ruble-denominated business loans on bank balances dropping by 680 billion rubles in the first quarter of 2025, and the volume of loans to individuals decreasing by 192 billion rubles.
**Here's the kicker: state expenses for the first three months of the year increased by 25%, and the federal budget deficit amounted to 2.2 trillion rubles. However, Putin claimed this is mainly due to schedule changes, with many expenses moved up to earlier dates to enable quicker project launches, contract payments, and allocation of funds.
Enrichment Data:
The primary challenges Russia is grappling with, as per Putin's April 1, 2025 meeting with Central Bank Governor and senior officials, revolve around high inflation, economic deceleration, and labor shortages.
Inflation and Monetary Policy:Putin acknowledged that the inflation rate in Russia remains unmanageably high, over 10%, despite the Central Bank's aim of notching it down to 4%. The Central Bank's high-interest rates, set at 21%, aim to control inflation but have resulted in subdued lending activity and pressure on businesses.
Economic Growth and Slowdown:Putin described the economic growth of 2025 as "slightly lower," indicating a slowing economic path that is being managed as a "soft landing." Economic growth is experiencing its slowest pace in two years, primarily due to falling oil prices and a deteriorating global economic climate. Russia's budget assumed an average oil price of $70 per barrel, but oil prices dropped below $60, causing a negative impact on revenues. This, combined with international sanctions and tariffs, paints a grim picture for Russia's economic outlook.
Labor Market Challenges:A significant challenge is labor shortages brought on by various factors: the military draft taking tens of thousands of working-age men out of the labor force, persistent demographic decline due to low birth rates, and mass migration since 2022, which has diminished the workforce in crucial sectors like IT, finance, and management. The Labor Ministry projects a worker shortage of 2.4 million by 2030. Despite increased migrant registration in 2024, actual migrant labor force numbers have not increased significantly, worsened by stricter migration controls and anti-migrant rhetoric. These demographic and workforce issues severely constrain economic growth potential.
Summary of Challenges:- Persistently high inflation (over 10%, unlikely to reach Central Bank's target of 4%)- Slowing economic growth, with the risk of a 3-4% contraction in 2025 due to falling oil prices and global uncertainties- Severe labor shortages caused by military mobilization, demographic trends, and migration challenges- Business pressures from high borrowing costs and limited lending activity.
Putin's meeting spotlighted these interconnected challenges, focusing on balancing inflation control against ensuring overall economic stability amid external and internal pressures.
- Vyacheslav, during Putin's economic meeting, there was a focus on high inflation, with the goal to reduce it to a moderate level and enable stable economic growth.
- The global economic climate, influenced by the US-China trade war and increased competition, was a topic Putin emphasized during the meeting, calling it a hurricane that the world needs to weather.
- Putin highlighted the need to capitalize on opportunities that arise during economic turmoil, such as boosting homegrown productions, trade, exports, and the overall economy.
- Despite a GDP growth of 1.9 percent in the first two months of the year, the meeting also discussed concerns about the dwindling number of new construction projects, its impact on housing affordability, and the decreasing credit portfolio of banks, which is causing state expenses to increase.
