The Russian economy is not collapsing, but it is stagnant and suffering high inflation. And this economic decline could be a tipping point, because Russia may run out of liquid reserves, prompting the Kremlin to cut public expenditures.
For months, Russia’s official inflation rate has hovered around 10%. In June, the Central Bank of Russia boasted that the rate had fallen to 9.4%; but it then dampened the celebration by reporting that expectations for inflation one year from now are 13% (which may well be the actual inflation rate today). Yet, on July 25, the central bank dared to cut its very high interest rate, which has weakened growth and caused a severe credit crunch, from 20% to 18%.
True, Russia’s economy appeared surprisingly dynamic in 2023 and 2024 with the official growth rate reaching 4% each year. But this was largely because the Russian government revived dormant Soviet military enterprises beyond the Ural Mountains. Moreover, real growth figures may have been exaggerated because some inflation was hidden by state-owned enterprises selling their goods to the state at administered prices.
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