The Struggling Might: Russia's Economic Struggles in 2025
Military Economic Strains Visible in Russia's Defense Sector
Stride through the bustling streets of Moscow, and you'll see an elderly gentleman, clad in a shirt brandishing symbols of the USSR, meandering about the market. Behind this scene lies a hard-hitting truth: Russia's economic might, which defied doom and gloom for three years, is now buckling under the weight of mounting budget deficits, weak oil prices, and a looming threat of further Western sanctions.
Blood, sweat, and steel have been the driving forces behind Russia's financial fortitude, fueling its war efforts in Ukraine. However, the Kremlin's relentless pursuit of military strength is now showing signs of exhaustion.
"Milking the economy via the military-industrial complex alone ain't cutting it anymore," retorts Natalia Zubarevich, an economist from Moscow State University, echoing the sentiments of many analysts.
Government spending has soared by a staggering 60%, with military outlays accounting for a whopping 9% of GDP, according to President Vladimir Putin himself. Yet, Zubarevich laments, almost every other sector is languishing, recording zero or even negative growth.
The first quarter stats paint a dismal picture, with Russia's economy expanding a meager 1.4% - its lowest reading in two years. The Central Bank predicts growth of no more than 1-2% in 2025. Alexandra Prokopenko, a former central bank advisor, succinctly articulates the current state of affairs: "Russia's economy is simply running out of steam."
Putin, known for relishing in Russia's economic triumph, remains unfazed by these projections. He believes that steady, sustainable growth is more crucial than rapid, fleeting expansion, which could lead to harmful economic imbalances in the long run.
Inflation is rapid, running at around 10%, posing a significant challenge to the central bank. Despite moderating price rises, the bank recently nudged interest rates down from a two-decade-high, acknowledging the need for monetary easing. However, these elevated borrowing costs, coupled with plummeting oil prices, are the primary culprits behind the slowdown, asserts economist Anton Tabakh.
To counteract the dwindling revenues, Russia has raised taxes on businesses and high earners. Yet, these new revenues only compensate for the shortfall in oil sales, notes Zubarevich. As a result, Russia's parliament was compelled to amend state spending plans for 2025, projecting a budget deficit of 1.7% - triple the initial estimate.
Ukrainian President Volodymyr Zelensky is petitioning the U.S. President Donald Trump to impose fresh economic sanctions on Moscow, viewing it as retribution for the continual bombardment of Ukrainian cities and the rejection of ceasefire calls. However, Moscow's reaction tends to be bipolar, oscillating between denouncing sanctions as illegal attacks and dismissing them as ineffective tools that have backfired on Europe and the United States.
Despite the challenges, Russia remains steadfast in its assertion that it has the reserves to sustain its military campaign for an extended period. Zubarevich affirms: "Russia can carry on its conflict for a long time, at least until 2025. The following years will be tougher, but they'll cut unnecessary costs to maintain military spending."
Sources:1. Business Insider2. Rosstat3. The Moscow Times4. Api.Euractiv5. RT
"Natalia Zubarevich, an economist from Moscow State University, suggests that Russia's military-centric economy is no longer sufficient for economic growth, highlighting the struggling sectors with zero or negative growth."
"Government expenditures, particularly on military outlays, have increased significantly, causing a strained economic situation, as indicated by the low GDP growth rate and the rising budget deficit."
