Russia's inflation fight is working — at the cost of growth
"Current inflationary pressures, including underlying ones, are declining faster than previously forecast," Russia's central bank said last month.
Russia's inflation fell from 8.2% in the first quarter to 4.8% in the second quarter, prompting its central bank to lower its key interest rate from 20% to 18%.
"The economy continues to return to a balanced growth path," the central bank added.
That phrase is just "a euphemism for anemic growth," wrote Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis, on Thursday.
The Bank of Russia expects Russia's economy to grow 1% to 2% this year. Meanwhile, the International Monetary Fund expects growth of 0.9%.
Russia's central bank projects the key interest rate to average between 18.8% and 19.6% this year and fall to 12% to 13% next year — a shift from aggressive interest-rate hikes from mid-2023 to tame an overheating war-fueled economy.
Such high rates were effective at cooling prices. But they have also made borrowing more expensive and dampened both consumer demand and business investment.
Since its full-scale invasion of Ukraine triggered sweeping Western sanctions, Russia has kept its economy afloat through massive defense spending and revenue from oil and gas exports. But that momentum may be running out.
Growth stalls as manufacturing contracts and momentum fades
The country's GDP grew just 1.4% in the first quarter — a sharp slowdown from the previous quarter.
In July, Russia's manufacturing sector posted its steepest contraction in three years, according to S&P Global's Purchasing Managers' Index.
"Weak client demand and financial difficulties at customers" weighed on output and new orders, wrote S&P Global. Business confidence was the lowest in three years.
The slowdown in manufacturing suggests Russia's wartime economy may be losing momentum, adding pressure on policymakers to strike a delicate balance.
"For the Kremlin, a brief period of low growth is tolerable, though combined with lower oil prices, it would reduce fiscal revenues," CEPA's Kolyandr wrote.
"The main gamble is that the cooling of the economy won't trigger a prolonged recession," he added.
Russia's central bank now finds itself walking a tightrope: keeping inflation in check while avoiding a deeper downturn. Continued wartime spending could easily reignite inflation, but pulling back could deepen the slowdown, especially as foreign investment remains scarce and consumer confidence weak.
Meanwhile, President Donald Trump is putting pressure on Russia to end its war with Ukraine with new penalties, including secondary tariffs.
Last week, Trump announced a 25% tariff on India and a "penalty" for its purchases of Russian oil.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNBC
15 minutes ago
- CNBC
India calls out EU and U.S.' trade with Russia after Trump threatens steeper tariffs on New Delhi
India said it was is being "targeted" by the U.S. and the European Union over its imports of Russian oil after U.S. President Donald Trump in an overnight social media post threatened New Delhi with much steeper tariffs. India began importing oil from Russia only after traditional supplies were diverted to Europe following the outbreak of the Russia-Ukraine war in 2022, the country's foreign ministry said in a statement late Monday. The ministry called out the EU and the U.S. saying, "it is revealing that the very nations criticizing India are themselves indulging in trade with Russia. Unlike our case, such trade is not even a vital national compulsion [for them]." The EU's bilateral trade with Russia stood at 67.5 billion euros ($78.1 billion) in 2024, while its services trade in 2023 was at 17.2 billion euros, according to European Commission data. Citing that data, India said the bloc's trade was "significantly more" than India's total trade with Russia. Data from the Indian embassy in Moscow showed bilateral trade between New Delhi and Moscow reached a record $68.7 billion for the year ended March 2025, nearly 5.8 times higher than the pre-pandemic trade of $10.1 billion. The EU, meanwhile, was Russia's third-biggest trade partner in 2024, accounting for 38.4% of the bloc's total trade with the country, sliding from being Moscow's top partner in 2020. EU's goods trade with Russia dropped to 67.5 billion euros in 2024 from 257.5 billion euros in 2021. India's response comes after Trump threatened on Monday that he would be "substantially raising" the tariffs on India, although he did not specify the level of the higher tariffs. The U.S. president had threatened a 25% duty on Indian exports, as well as an unspecified "penalty" last week. He also accused India of buying discounted Russian oil and "selling it on the Open Market for big profits." Russia became the leading oil supplier to India since the war in Ukraine began, increasing imports from just under 100,000 barrels per day before the invasion, or a 2.5% of its total imports, to more than 1.8 million barrels per day in 2023, or 39%, according to the U.S. Energy Information Administration's report earlier this year. "The United States at that time actively encouraged such imports by India for strengthening global energy markets stability," the country said in its statement. According to the International Energy Agency, 70% of Russian crude was exported to India in 2024. India said oil imports were meant to ensure predictable and affordable energy costs to the Indian consumer. India has in the past defended its oil purchases from Russia, with Hardeep Singh Puri, the country's energy minister, saying in an interview last month with CNBC that New Delhi helped stabilize global energy prices and was encouraged by the U.S. to do so. "If people or countries had stopped buying at that stage, the price of oil would have gone up to 130 dollars a barrel. That was a situation in which we were advised, including by our friends in the United States, to please buy Russian oil, but within the price cap," Puri said. India also took aim at the U.S, saying the country continues to import uranium hexafluoride for its nuclear industry, palladium for the electric-vehicle industry, as well as fertilizers and chemicals. U.S. bilateral trade with Russia in 2024 stood at $5.2 billion, compared with nearly $36 billion in 2021, government data showed. The U.S. has not imposed any "reciprocal tariffs" on Russia. "In this background, the targeting of India is unjustified and unreasonable. Like any major economy, India will take all necessary measures to safeguard its national interests and economic security," New Delhi said.
CNBC
an hour ago
- CNBC
CNBC Daily Open: Trump doubles down on criticism of jobs report — but markets bounce back
The U.S. Bureau of Labor Statistics' July's jobs report revised previous months' figures down so dramatically that U.S. President Donald Trump called it "RIGGED" and "CONCOCTED." Markets, however, seem to have shrugged off their worries for now — U.S. stocks rebounded Monday from the sell-off on Friday after the report was released. The move, however, could be more an instinctive reflex than a reflection of what's really driving markets. "Today is sort of a bounce-back day," said Sam Stovall, chief investment strategist at CFRA Research. "Stocks tend to pop after a drop, so that's what's happening." "We have to wait and see what happens tomorrow, because there could be a possibility that investors think, 'You know what, we really need to take some money off the table to digest some of these gains,'" he added. Trump's new tariffs come into force on Aug. 7, so there's a possibility investors could seize this opportunity, when markets have recovered slightly from Friday's losses, to take profit first — and before any further slowdown, as suggested by July's jobs report, is potentially "rigged" and strikes the U.S. economy. The EU will suspend its planned U.S. tariffs for six months. The countermeasures, which would have taken effect on Aug. 7, were delayed to allow the bloc to "further negotiate" with the U.S. and "finalise a Joint Statement" on their trade deal. Trump will 'substantially' raise tariffs on India. The South Asian country's oil purchases from Russia — a transaction defended by India's energy minister Hardeep Singh Puri — is the cause behind Trump's threat. Stocks rebound from Friday's losses. Major U.S. indexes rose Monday, with the S&P 500 snapping a four-day losing streak. The Stoxx Europe 600 gained 0.9%. Swiss stocks pared losses after the government said it would continue U.S. negotiations. Palantir's quarterly revenue exceeds $1 billion. Wall Street had expected the software provider to hit that milestone only in the fourth quarter of the year. But a 48% year-over-year jump in second-quarter revenue helped Palantir beat forecasts. [PRO] The "Magnificent Seven" are powering earnings growth. Year on year, Mag 7 earnings have increased by 26%. The other S&P 500 companies posted a combined 4% growth — a disparity that could be problematic for investors, according to an analyst. Contentious July jobs report confirms the U.S. economy is slowing sharply. Here's why Nonfarm payrolls rose by just 73,000 in July, below even the muted expectations. Heavy downward revisions to the May and June count took the three-month average job gains down to just 35,000, or less than one-third the pace for the same period a year ago. Traditionally a lagging indicator when it comes to recessions, the weakness in job growth points to an economy that may be slowing even more than some of the traditional metrics are showing.
Epoch Times
an hour ago
- Epoch Times
NTD Evening News Full Broadcast (Aug. 4)
President Donald Trump announced he will increase tariffs on India Monday, warning the country over its continued purchases of Russian oil. Meanwhile, the United States is poised to impose new sanctions and secondary tariffs on Russia if Moscow does not agree to a cease-fire with Ukraine by Friday. The Texas House failed to rea...
