Struggling Under High Interest Rates: Russia's Economy Teeters on the Edge of Recession, According to Minister Reshetnikov
Economy Minister Reschetnikov predicts Russia is edge-close to slipping into a recession.
Hop on social media, send a quick message, or shoot an email -- either way, you'll hear it loud and clear: Russia's economic situation is looking grim. Maxim Reshetnikov, the country's Minister of Economy, raised a red flag at the St. Petersburg Economic Forum, stating that Russia might be on the verge of a recession [Facebook, Twitter, Whatsapp, Email, Print, Copy Link]. Companies are finding themselves in tight spots, particularly due to loans taken out at sky-high interest rates, a subtle dig at the central bank's monetary policy.
The Russian economy had a strong growth phase in 2023 and 2024, largely due to hefty military spending. In 2024, the economy expanded by a decent 4.1 percent, as per official reports. However, economists have questioned the sustainability of these expenditures, arguing they don't reflect real productivity gains. The economy grew by a mere 1.4 percent in the first quarter of 2025.
Recent weeks have seen several economic figures and even Reshetnikov himself raise concerns about the high interest rates. Currently, the key interest rate stands at a staggering 20 percent, with the central bank intent on combatting inflation within the country. Consumer prices have been skyrocketing for months, with an inflation rate approaching 10 percent in May.
Reshetnikov clarified to reporters in St. Petersburg that he hadn't predicted a recession but merely said they were precariously close. "I didn't say we're in a recession, I said we're on the brink," he explained, adding that the fate of the economy now rests in the hands of the state in the coming weeks. "I believe if everything's done correctly, we will avoid it," he declared, intimating that he will reassess the situation in August, once most decisions have been made and their consequences are clear.
Sources: ntv.de, AFP
Bonus Insights:
- The high interest rates in Russia in 2025 are primarily a result of the Central Bank's tight monetary policy aimed at controlling inflation, with the key rate hovering around 20-21% since late 2024 [1][3]. This tough stance is intended to return inflation to the Central Bank's target of 4% by 2026 and manage inflation expectations [3].
- The economy has been volatile and faced structural challenges since the full-scale invasion of Ukraine in 2022, with economic sanctions and shifts in fiscal priorities contributing to economic risk premiums on borrowing [1]. Additionally, an overvalued ruble and recent tax reforms have added to the economic pressures and made investment less attractive for businesses [2].
- The high real interest rates (around 10% after accounting for inflation) are severely impacting business profits, causing companies to hesitate or scale back investments [2]. Furthermore, problem loans have ballooned to 3.2 trillion rubles (about 35.5 billion euros), indicating that many companies are finding it increasingly difficult to service their debt under the burden of elevated interest costs [4].
- If the tight monetary policy persists, Sberbank, Russia's largest bank, has cautioned that many companies currently managing will face a severe financial crisis that could lead to defaults and bankruptcies [4]. This economic slowdown, partially attributable to the high interest rates stifling business activity and investment, has seen GDP growth decline to 1.4% year-on-year, marking the lowest rate in two years [1][2].
- The high interest rates in Russia, a result of the Central Bank's tight monetary policy, are causing concern for businesses, as they significantly impact business profits and may lead to financial crises, defaults, and bankruptcies.
- Discussions about employment policy are increasingly prevalent within the Russian community, as high interest rates stifle business activity and investment, leading to economic slowdown, and forcing companies to re-evaluate their hiring and retention strategies.
