The Russian economy is “on the brink” of entering a recession, the country’s economy minister warned on Thursday.
Speaking at the St. Petersburg International Economic Forum, a major annual business event in Russia, Maxim Reshetnikov said data showed the economy “cooling.”
When a moderator asked him to describe the state of the economy, he said it seemed that the country was “on the verge of going into recession,” according to Russian news agency Interfax.
He later clarified that he wasn’t making an outright prediction. “I said that we were on the brink,” Reshetnikov said. “From here on out, everything will depend on our decisions.”
Reshetnikov has already raised concerns about the direction of the Russian economy. In May, while addressing the State Duma, he said that the economy was cooling so sharply it risked entering a state of economic “hypothermia.”
In that address, Reshetnikov urged Russia’s central bank to take into account easing inflation when setting interest rates. On June 6, the bank did just that, cutting its key interest rate from 21% to 20%, citing signs of declining inflation.
While inflation is easing slightly, it has remained stubbornly high — now hovering around 10% — since spiking in the wake of Russia’s full-scale invasion of Ukraine in February 2022.
Hard or soft landing?
The central bank’s moves to dampen inflation meant a sharp economic slowdown was inevitable and even intentional, said Brigitte Granville, professor of international economics and economic policy at Queen Mary, University of London.
“The key question has always been whether the Russian economy would undergo a ‘hard landing’ — meaning inflation would be brought under control at the cost of tipping the economy into recession — or a ‘soft landing,’ where inflation moderates without triggering a recession,” she told BI in an email.
Even if a technical recession did occur, Granville said Russia’s labour market remained extremely tight, supporting wage growth. “Even a hard landing would not have serious consequences for the sustainability of Russia’s war effort.”
All in on defense
Since the start of the war, Russia has gone all in on defense spending.
It’s on track to spend about $130 billion on defense, roughly a third of its federal budget, up from 28.3% in 2024.
It’s also potentially running low on cash, with one Swedish economist predicting that Russia could run out of liquid reserves as soon as this fall.
The country is still grappling with the effects of Western sanctions, which have targeted its oil and gas exports and largely cut financial institutions off from the international financial communication system SWIFT.
Russia’s economy is also suffering from a severe labor shortage, driven in part by the military mobilization, as well as a brain drain of young professionals leaving the country.
According to state media, Russia had a shortfall of some 2.6 million workers at the end of 2024, with shortages hitting the manufacturing, trade, and transportation sectors especially hard.
