Russian economy records series of red alerts, has Moscow "taken the hit" of sanctions?

(Dan Tri) - The Russian economy once recorded impressive growth despite sanctions, but recently it is showing clear signs of weakness. Is Moscow's economic growth model gradually revealing its limits?

Despite Western sanctions, Russia's economy has maintained one of its highest growth rates in the past two years.

However, recently, Russia's economic indicators are showing "red flags". Production activities are showing signs of decline, consumers are tightening their spending, while inflation remains high and the budget is under great pressure due to huge military expenditures.

Russian officials have also publicly warned of the risk of an economic recession. Russian businesses are cutting production amid the economic downturn.

At its meeting on July 25, the Russian Central Bank decided to lower its key interest rate by 2 percentage points to 18%. This is the second consecutive reduction in the key interest rate by the Russian Central Bank after the interest rate was kept at 21% from October 2024.

Following its previous meeting on June 6, the Russian Central Bank noted that tight monetary policy will be maintained until inflation returns to the 4% target by 2026.

The Russian economy’s decline shows that while Western sanctions may not be causing an immediate collapse, they are clearly taking a toll on the country. Many experts predict that if sanctions are tightened further or oil prices fall, the Russian economy could begin to falter.

“The growth model based solely on military spending has begun to crack,” Janis Kluge, an expert on the Russian economy at the German Institute for International and Security Affairs (GIISA), said in the report.

Russian President Vladimir Putin (Photo: Reuters).

Last month, Russian Economy Minister Maxim Reshetnikov warned that the country was on the brink of recession.

Meanwhile, President Putin dismissed the view that the war was holding back the economy, saying that warnings about the Russian economy were “exaggerated.” The Kremlin leader also added that recession or stagflation were unacceptable under any circumstances.

Stagflation is a term used to describe conditions of slow economic growth, high unemployment, rising prices, and economic stagnation in a context of high inflation.

This year, military and security spending accounted for about 40% of total Russian government spending. The shift of oil exports to China, along with Beijing's support, has also helped the Russian economy stay afloat in recent times.

However, the huge military spending has also caused inflation in Russia to skyrocket, forcing the Russian Central Bank to raise interest rates to a record 21%. High interest rates increase borrowing costs for businesses, causing them to cut back on investment and scale back expansion plans.

The S&P Global Manufacturing Purchasing Managers’ Index showed that Russian manufacturing suffered its sharpest decline in more than three years in June. New car sales in Russia fell nearly 30% in June compared to the same month last year, according to the Association of European Businesses (AEB).

Source: https://dantri.com.vn/kinh-doanh/kinh-te-nga-ghi-nhan-loat-bao-dong-do-moscow-da-ngam-don-trung-phat-20250725235109177.htm