German Gref, CEO of Russia’s largest bank and a close ally of President Vladimir Putin, warned that Russia’s wartime economy is in stagnation and only urgent measures can avoid a recession.
Gref urged drastic cuts to Russia’s historically high key interest rate, currently at 18%, suggesting it should drop to 12% to stimulate growth. Even a cut to 14%, he said, would not be enough.
Why the economy is struggling:
- High military spending fuels inflation and crowds out investment.
- Worker shortages due to troop losses in Ukraine and draft evasion.
- Shift from consumer production to defense production, creating inflationary pressures.
Despite recent growth of 4.1% in 2023 and 4.3% in 2024, the economy is slowing; the Finance Minister forecasts only 1.5% growth in 2025.
Expert opinion:
Richard Portes of London Business School argued that interest rate cuts alone cannot fix the structural issues of Russia’s war economy, including labor shortages and misaligned production priorities.
The comments increase pressure on Central Bank Governor Elvira Nabiullina ahead of the September 12 meeting, where the key interest rate decision will be revisited.
