Russia’s declining economy has been dealth another blow as Vladimir Putin is warned he cannot fund his war for much longer. Moscow continues to pour a staggering amount of money into funding the conflict with Ukraine amid soaring inflation and costs. Defence strategist Nicholas Drummond said the Russian president can continue on this path for no more than two years before the war becomes financially unviable.
He told the Express: “While the Russian economy has benefitted in the short-term by being put on a war footing, there is staggering inflation and a shortage of goods. There is a consensus among economists that Russia cannot sustain the war longer than another 24 months.”
This comes after Putin clashed with Russia’s top banker as the president scrambles to hide the extent of his suffering economy.
German Gref, CEO of the country’s largest bank, Sberbank, warned that Russia’s GDP growth had slowed to almost zero in July and August following a steep decline between April and June.
He told the Eastern Economic Forum: “The second quarter can practically be considered technical stagnation.”
This sparked the anger of the Russian president, who insisted that the slump merely showed a “soft landing” as prices stablilse. He said: “Ask Gref. Has lending stopped? No. The pace has just slowed.”
Oleh Pendzin, economist and head of the Economic Discussion Club, suggested that Mr Gref is worried about potential accusations levelled against him by Russia’s Federal Security Service – the state security agency and main successor to the KGB.
He said: “Public discussion is the only way today for economists to convey this problem to Russia’s top leadership. You can see how cautiously Gref speaks, making sure it doesn’t turn into accusations against him from Russia’s Federal Security Service.”
The Bank of Russia also cut its benchmark interest rate last week by one percentage point to 17% as growth slows and spending on the war against Ukraine increases the budget deficit.
It previously raised its key rate as high as 21% to combat inflation, but has begun to retreat amid complaints from business leaders and legislators about their impact on economic activity.
Inflation eased in July and August, but now remains at 8.2%. The central bank warned that “inflation expectations have not changed considerably in recent months”.
It said: “In general, they remain elevated. This may impede a sustainable slowdown in inflation.”
