Russia, Economy Minister: the country is on the brink of recession

Russia is on the brink of a recession. This was stated by Economy Minister Maxim Reshetnikov at an economic conference in St Petersburg. It is the first time the official publicly stated that the country's war economy is slowing down, three years after the invasion of Ukraine.

"The numbers show that the economy is cooling," Reshetnikov was quoted by Interfax as saying. - But all our numbers are a rear-view mirror. Judging by business sentiment at the moment, we are practically already on the brink of a recession'. The official went on to clarify that he did not 'predict the recession' for certain, stating that 'if everything is done correctly, we will not face it'. The ministry will revise its estimates 'in August, when most of the decisions have been made and the impact of previous decisions is clear'.

The Kremlin's massive investments in defence (+25% per annum in 2024) led to strong wage increases and a tight labour market. This year, however, the effect has started to diminish as demand has reached capacity. According to Reshetnikov, the aggressive monetary policy of the Russian central bank (CBR), with inflation at almost 10%, stifled investment.

Several senior Russian officials have asked Governor Elvira Nabiullina to accelerate cuts to the benchmark interest rate as companies struggle with high financing costs. The central bank has already lowered the cost of money by a full percentage point to 20% earlier this month, but said it will continue to pursue its inflation target of 4% (from 9.8% in June).

Reshetnikov called on the CBR to find a balanced approach between fighting inflation and promoting growth. "We are all aware that fighting inflation is important. But we are simplifying the discussion a little,' he said, 'I am in favour of showing the economy some love, just a little, and believing in 4 per cent.