Latest news with #RussiaEconomy
Asharq Al-Awsat
a day ago
- Business
- Asharq Al-Awsat
As Trump Mulls Sanctions, Russia's Military Economy Slows
After three years of doom-defying growth, Russia's heavily militarized economy is slowing, facing a widening budget deficit and weak oil prices, all under the threat of more Western sanctions. Huge spending on guns, tanks, drones, missiles and soldiers for the Ukraine campaign helped ensure Moscow bucked predictions of economic collapse after it launched its offensive in 2022. But as Kyiv's most important backers head Sunday to Canada for the G7, where US President Donald Trump will face pressure to hit Russia with fresh sanctions, the Kremlin's run of economic fortune is showing signs of fatigue. "It is no longer possible to pull the economy along by the military-industrial complex alone," Natalia Zubarevich, an economist at Moscow State University, told AFP. Government spending has jumped 60 percent since before the offensive, with military outlays now at nine percent of GDP, according to President Vladimir Putin. "Almost every other sector is showing zero or even negative growth," said Zubarevich. Russia's economy expanded 1.4 percent on an annualized basis in the first quarter -- down from 4.1 percent in 2024 to its lowest reading in two years. The central bank predicts growth of no more than 1-2 percent this year. Russia's economy "is simply running out of steam", Alexandra Prokopenko, a former central bank advisor and now analyst based outside Russia, wrote in a recent note. Oil reliance Putin, who has reveled in Russia's strong performance, has brushed off concerns. "We do not need such growth," he said at the end of last year, when the slowdown started. Rapid expansion risked creating "imbalances in the economy, that could cause us harm in the long run", he said. Top among those imbalances has been rapid inflation, running at around 10 percent. The Central Bank last week nudged interest rates down from a two-decade-high saying price rises were moderating. But those high borrowing costs -- combined with falling oil prices -- are the main factors behind the slowdown, economist Anton Tabakh told AFP. Russia's Urals blend of crude oil sold for an average of $52 a barrel in May, down from $68 in January -- a big reduction in energy revenues, which make up more than a quarter of government income. Russia this year has raised taxes on businesses and high earners, essentially forcing them to stump up more for the Ukraine offensive. But the new income "only covers the shortfall in oil sales", said Zubarevich. With tighter finances, Russia's parliament was this week forced to amend state spending plans for 2025. It now expects a budget deficit of 1.7 percent of GDP -- three times higher than initially predicted. Trump factor Ukrainian President Volodymyr Zelensky is urging Trump to whack a fresh set of economic sanctions on Moscow as punishment for rejecting ceasefire calls and continuing with its deadly bombardments of Ukrainian cities. "Russia doesn't really care about such human losses. What they do worry about are harsh sanctions," Zelensky said Thursday "That's what really threatens them –- because it could cut off their funding for war and force them to seek peace," he added. Trump's intentions are unclear. He has publicly mulled both hitting Moscow with new sanctions and removing some of the measures already in place. Some US senators, including Republicans, have proposed hitting countries that buy Russian oil with massive tariffs, to try to dent the flow of billions of dollars to Moscow from the likes of China and India. In Moscow, officials flip between blasting sanctions as an "illegal" attack on Russia and brushing them off as an ineffective tool that has backfired on Europe and the United States. Russia has also talked up its ability to continue fighting for years -- whatever the West does -- and has geared its economy to serving the military. Moscow still has the cash to wage its conflict "for a long time", Zubarevich said. "Through 2025 definitely. 2026 will be a bit tougher but they will cut other expenses. This (military) spending will stay."
The Independent
13-05-2025
- Business
- The Independent
European economist says Russia's economy is strained due to the Ukraine war and sanctions
Russia's economy is under growing strain as its invasion of Ukraine drags on and Western sanctions are undermining President Vladimir Putin's ability to sustain his war, a leading European economist said after briefing finance ministers on Tuesday. The economist, Torbjörn Becker, Director of the Stockholm Institute of Transition Economics, warned that should Russia prevail, European Union governments would have to spend 2-3 times more than they currently do on defense for several years. Russia's 'financial system, their macroeconomic performance, is under pressure. It's not in balance. Risks are mounting. But it doesn't mean that we can sit back and relax,' Becker told reporters at EU headquarters in Brussels. He spoke after briefing the bloc's finance ministers to help provide a picture of 'the actual condition of Russia's economy, which significantly contrasts with the narrative promoted by Russian propaganda,' the EU's Polish presidency said. It said that discussion would help 'us to better shape punitive, financial and economic sanctions against Russia.' Becker said Russia's economy only accounts for about 12% of the economies of the world's biggest trading bloc. He underlined that it is highly dependent on oil and natural gas revenue, and on imports of high-tech equipment to sustain the war effort. Still, Russia's economy has outperformed predictions. High defense spending has propelled growth and kept unemployment low despite fueling inflation. At the same time, wages have gone up to keep pace with inflation, leaving many workers better off. Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine have also put more income into the country's poorer regions. Over the long term, inflation and a lack of foreign investments remain threats to the economy. The question is how long Russia's militarized economy can keep going before those issues bite and whether it can hold out for longer than Ukraine and its Western backers. To hit its economy harder, EU envoys have drafted a new set of sanctions that would target more ships in the shadow fleet of tankers that Russia has deployed to evade a price cap of $60 per barrel imposed on Russian oil by the Group of 7 democracies. They could also freeze the assets of the Nord Stream II gas pipeline consortium. The pipeline is not in use, but the EU believes the move could help to discourage investment. The sanctions could enter force as soon as Thursday. 'If we can lower oil prices and gas revenues and put tighter sanctions on what they can import, that's great,' Becker said. He said U.S. President Donald Trump should press 'China and India about what they are paying for and what they're exporting to Russia.' Russia found new markets for its oil in India and China after the EU imposed a near-total ban and continues to earn a substantial part of government revenues from exports of oil and gas. Becker also urged Trump to hit Russia's financial system by restricting international transactions. 'If something ruins an economy pretty quickly, it's a banking crisis,' he said. In a recent report, his institute said that Russia's oil revenues decreased dramatically in early 2025, notably due to EU and G7 sanctions on the ghost fleet. This has forced Russia to withdraw from its sovereign wealth fund. The institute estimates that the liquid part of the fund is now equivalent to less than 3% of GDP. 'If oil prices stay as they are, they will certainly run out of these funds in a year,' Becker said. ___ David McHugh reported from Frankfurt, Germany.
