Economic Growth in Russia Slows Amid Inflation Concerns
Recent official data indicate that the pace of Russia’s economic growth has decelerated in the second quarter of 2024. This slowdown occurs against a backdrop of persistent inflation and warnings of potential “overheating” within the economy.
Gross domestic product (GDP) experienced a decline from 5.4 percent in the first quarter to 4 percent between April and June. This marks the lowest quarterly growth rate since the beginning of 2023, although it still signifies that the economy is on an upward trajectory.
Inflation continues to be a pressing issue, with consumer prices increasing by 9.13 percent year-on-year in July, up from 8.59 percent in June, representing the highest rate since February 2023.
Since the deployment of troops to Ukraine in February 2022, the Kremlin has significantly militarized the Russian economy, channeling substantial resources into arms production and military personnel salaries. This surge in spending has contributed to economic growth, allowing the Kremlin to defy initial forecasts of a recession that followed unprecedented Western sanctions in 2022.
However, this financial boom has also led to soaring inflation domestically, compelling the Central Bank to increase borrowing costs. Last month, the bank raised its key interest rate to 18 percent, the highest level since an emergency increase in February 2022, which had pushed it to 20 percent.
The governor of the Central Bank, Elvira Nabiullina, noted that the economy is exhibiting signs of “overheating” and highlighted challenges related to international payments as a consequence of Western sanctions, which are further contributing to inflationary pressures.
According to President Vladimir Putin, Russia is projected to allocate nearly nine percent of its GDP to defense and security this year, a level not seen since the Soviet era.
