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Newsweek
21 minutes ago
- Business
- Newsweek
Russia's Economy Wobbles Under Strain of Ukraine War
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Russia's war economy has received welcome news about a dip in inflation but faces further turbulence due to concerns over state bailouts for firms and further sanctions on its key energy exports. High key interest rates to cool the economy have lowered short-term inflation, but European Union (EU) measures to make it harder for Moscow to sell oil could hurt revenues, a financial expert has told Newsweek. Another expert said that the Russian economy has come close to stagnation, and late and unpaid loans have increased. It comes amid a warning that the country's high payments to soldiers fighting in President Vladimir Putin's full-scale invasion of Ukraine, and the resultant labor shortage, could further destabilize the Russian economy. Newsweek has contacted the Russian finance ministry for comment. Russian Central Bank Governor Elvira Nabiullina (left), Vladimir Putin (center) and Russia's Finance Minister Anton Siluanov (right) pictured on March 17, 2025, at the Grand Kremlin Palace in Moscow, Russia. Russian Central Bank Governor Elvira Nabiullina (left), Vladimir Putin (center) and Russia's Finance Minister Anton Siluanov (right) pictured on March 17, 2025, at the Grand Kremlin Palace in Moscow, Russia. Getty Images Why It Matters Putin's aggression prompted western-led sanctions aimed at choking his war machine, but Russia's economy has still grown, helped in part by record military spending. But war losses have fueled a worker shortage that has stoked inflation, which Russia's Central Bank has tried to cool with a key interest rate that it dropped to 20 percent last month—still too high for business leaders unhappy at how it stifles lending and investment. The Central Bank can claim its interest rate has worked, albeit temporarily, after reporting four percent inflation, but this small victory may be only a façade of domestic economic stability as sanctions and state bailouts loom. What To Know Russia's Central Bank said that the country's seasonally adjusted annual rate (SAAR) of inflation decreased to four percent in June, which is in line with its target inflation rate. Bloomberg said this SAAR decrease was the first sign that efforts to lower the inflation rate were working and, although the official annual inflation rate remains nine percent, at the current rate inflation could hit four percent annually next year. Russian economy expert Vasily Astrov, of the Vienna Institute for International Economic Studies, told Newsweek on Tuesday that inflation had subsided markedly partly thanks to the strong ruble, which suppressed the growth of import prices. But it was mostly due to the Central Bank's extremely tight monetary policy in which it raised the key interest rate to 21 percent. This was reduced in June but Central Bank Governor Elvira Nabiullina teased pausing further rate cuts if inflation continues. Astrov said this high key rate has cooled domestic demand, with the welcome side effect of decreasing inflation. But the downside is that the economy has "come close to stagnation" and nonperforming (late and unpaid) loans (NPLs) have increased. Bloomberg reported top Russian bank executives privately discussed seeking a state-funded bailout if nonperforming loans continue to grow this year, amid concerns NPLs could nearly double from four percent to seven percent by next year. But Bloomberg said the Central Bank told lenders to focus on restructuring credit with the borrowers and absorb the bad loans. The Institute for the Study of War (ISW) said this showed it was not wanting to bail out major banks, a move which could cause liquidity problems. A photo of Russian ruble notes taken on January 11, 2025, in Bath, England. A photo of Russian ruble notes taken on January 11, 2025, in Bath, think tank added that any failure of a major Russian bank would undercut Putin's narrative that neither the war in Ukraine nor Western sanctions are hurting the Russian economy. Nabiullina has downplayed the risk of a systemic crisis, saying at a financial forum in St. Petersburg on July 2 that Russia's banking system was "well capitalized" with capital reserves of 8 trillion rubles ($102 billion). Troop Costs The ISW also said that payments to Russian soldiers to fight in Ukraine and an increasing labor shortage will likely further destabilize the economy, regardless of the Kremlin's claims of economic stability. Large one-time payments to attract recruits coinciding with expanding Russia's defense industrial base will be difficult for the economy to maintain, the think tank said. Astrov said that payments for soldiers are around two percent of GDP but this level can be sustained for quite some time, and Putin has announced recently that military spending will not increase further. Labor shortages are still a problem, although they have eased somewhat recently in line with the economic slowdown. "Part of the problem is the anti-migration policies of the authorities, given that immigration used to be historically an important source of labor force for Russia," Astrov added. Sanctions On July 18, the EU adopted its 18th package of sanctions against Moscow aimed at curbing oil and energy revenues. The package includes plans to lower a price cap for Russian oil from $60 per barrel set by the G7 to $47.60. Leigh Hansson, sanctions partner at international law firm Reed Smith, told Newsweek that lowering this limit could hurt Russian oil revenues, making it harder to find vessels willing to carry the cargo—although Ukraine has pushed for bigger cuts to the price cap. The U.K. has also imposed new sanctions on Russia's sanctions-busting "shadow fleet," targeting 135 oil tankers along with two Russian firms: shipping company Intershipping Services LLC and oil trader Litasco Middle East DMCC. What People Are Saying Vasily Astrov, expert on the Russian economy at the Vienna Institute for International Economic Studies, told Newsweek that "inflation has really subsided markedly over the past few months. The outcome of this policy has been a marked cooling of domestic demand, with the welcome side effect of rapid disinflation. "On the downside of this policy, the economy has come close to stagnation, and NPLs have shot up." Leigh Hansson, Reed Smith sanctions partner, told Newsweek that EU sanctions "have the potential to hurt Russian oil revenues as it may become more difficult to find vessels willing to carry the cargo." What Happens Next There will be anticipation over whether the Central Bank cuts the key interest rate and the current inflation rate can be maintained. Meanwhile, Kyiv will hope that new sanctions on Russian energy can further hurt the economy. Hansson said it will be interesting to see whether the U.S. and other G7 countries go along with the new price cap mechanism, or whether this will create a disconnect in enforcement across the market.
Mint
6 days ago
- Business
- Mint
Russian Banks Have Discussed Seeking Bailouts Within Next Year
Top executives at some of Russia's biggest banks have privately discussed seeking a state-funded bailout if the level of bad loans on their books continues to worsen over the next year. At least three lenders identified as systemically important by the Bank of Russia have considered the possibility that they may need to be recapitalized in the next 12 months, according to current and former officials and documents reviewed by Bloomberg News. The banks have discussed internally how they would raise the prospect of a bailout with the central bank should that become necessary. The scenario arises because their assessment of the quality of their loan books is far worse than what official data show, according to the people and documents. The people, granted anonymity to disclose information that isn't public, said any bailout request was dependent on a continued rise in the volume of bad loans over the next year. Still, they said the discussions were becoming more urgent throughout the banking industry. On paper the banking system is in relatively good health, with profits robust even amid a rise in so-called non-performing loans to companies and households with the central bank's key interest rate at a near-record high 20%. Officially, levels of bad debt remain well below those recorded in past financial crunches and that were defused by the Russian authorities. However, the central bank itself has advised lenders to focus on restructuring credit instead of recognizing the full extent of souring loans. The Bank of Russia didn't respond to an emailed request for comment. Central bank Governor Elvira Nabiullina downplayed the risk of a systemic crisis at a financial forum in St. Petersburg on July 2, saying Russia's banking system was 'well capitalized' and had capital reserves of 8 trillion rubles . 'As the body that supervises banks, I say with full responsibility that these concerns are absolutely unfounded,' she said. The central bank has said it could release what's known as a macroprudential capital buffer, allowing banks to absorb losses and operate with temporarily lower capital ratios. That step may ease some pressure on the system, unless the volume of losses were to go beyond what the buffer was designed to absorb. Officially, the share of bad-quality loans to corporate borrowers stood at 4% as of April 1, while the proportion of unsecured consumer debt in arrears of 90 days or more was at 10.5%. Still, top bankers have begun to raise the alarm about the prospects for the next year. 'It is already clear that it will not be easy,' Herman Gref, chief executive officer of state-owned Sberbank, Russia's largest lender, said of the prospects for the next year at the annual shareholders meeting last month, because loan portfolio quality is deteriorating with companies increasingly needing to restructure their debts. 'I hope, as always, we will be able to find joint plans to get through these difficult times,' he added. At VTB, Russia's second-largest lender, the share of non-performing loans from individuals in its retail portfolio reached 5% in May, amounting to 377 billion rubles, the bank's First Deputy Chairman Dmitriy Pianov said, Vedomosti newspaper reported July 1. That indicator has risen by 1.2 percentage points since the beginning of the year. The share of bad loans could hit 6%-7% by 2026, Pianov said, though he also noted this was below the peak of 8%-10% seen in 2014-16. Clients are anxious about high interest rates, and the share of bad loans is growing though banks are restructuring them for now and have plenty of reserves, according to top managers at two systemically-important Russian lenders, asking not to be identified discussing internal matters. While there's little sign so far of a crisis, which could anyway be resolved by injections of funds, a lot of data has been classified and the full picture may not be visible, one of the people said. Russia has used bailouts and other mechanisms to recapitalize failing banks in the past. In 2017, the central bank spent at least 1 trillion rubles to rescue three large private banks, Otkritie, Promsvyazbank and B&N Bank, a move it said was necessary to save the financial system. The central bank established the Banking Sector Consolidation Fund in 2017 to inject capital into lenders buckling under pressure from bad loans and to rehabilitate them. This article was generated from an automated news agency feed without modifications to text.
Reuters
10-07-2025
- Business
- Reuters
Russian central bank sees no risk of looming banking crisis
ST PETERSBURG, Russia, July 3 (Reuters) - The Russian central bank sees no risk of a looming crisis in the country's banking system as rising bad debts are well covered by banks' $100 billion in capital, Governor Elvira Nabiullina said on Thursday. The share of bad and restructured loans in Russian banks' portfolios has been rising, as more companies struggle to refinance their debts at interest rates that have jumped above 30% as a result of the central bank's tight monetary policy. Some economists and bankers have recently raised concerns about the health of the banking system in light of the growing share of bad debts. The last time the central bank had to bail out a major Russian bank was in 2017. "Having full information about the banks, as the authority overseeing them, I can state with complete confidence that these concerns are absolutely unfounded," Nabiullina told reporters. "The banking system is well capitalized, despite the fact that this capital is unevenly distributed across the banking sector. The capital buffer is substantial at 8 trillion roubles ($101.18 billion)," Nabiullina said. Russia's second-largest bank, VTB, reported that the share of non-performing loans (NPLs) in its portfolio that have not been serviced for over 90 days reached 5% in May. During the financial turbulence of 2014-16, VTB's share of such loans was as high as 10%. VTB's First Deputy CEO, Dmitry Pyanov, said the share of NPLs could rise to between 6% and 7% within the next few months, but stressed that this was still far from peak levels. VTB estimated the share of restructured corporate loans at 3%. Nabiullina said the continued strong profits reported by the banking sector this year indicate that banks have not been forced to increase provisions to cover the rising share of bad loans. "Banks are not significantly increasing provisions. If the share of bad loans were rising, the share of provisions would also increase, which would lead to a decrease in profits. But banks' profits are comparable to last year's," she said. The central bank introduced an additional requirement on provisions, called a "countercyclical buffer", at 0.25% of total assets in February and raised it to 0.5% from July 1. It is considering a further increase to 1%. ($1 = 79.0705 roubles)
American Military News
06-07-2025
- Business
- American Military News
Russia's War Economy Is Heading To Recession. It Probably Won't Slow Down The War.
This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission. At Russia's annual marquee event for business investment, a Kremlin-funded bubbly celebration of promise and opportunity, the country's top economic minister poured cold war on the party. 'According to the numbers, yes, we've got a cooling down now,' Maksim Reshetnikov said at the St. Petersburg International Economic Forum. 'Based on current business sentiment, it seems to me we are on the brink of transitioning into recession.' If that wasn't enough of a damper, the head of the Russian Central Bank seconded the downbeat sentiment. 'We have been growing for two years at a fairly high rate due to the fact that free labor resources were used,' Elvira Nabiullina said during the same panel discussion on June 19. 'But we need to understand that many of these resources have really been exhausted. We need to think about a new model for growth.' And there was also this from German Gref, the head of the state-owned banking giant Sberbank, on the sidelines of the forum: 'We are colliding with a large number of problems, which today we can call a perfect storm.' For more than 40 months now, since the start of the all-out invasion of Ukraine, Russia's economy has been on a war footing, growing at a robust — at times torrid — rate, and showing resilience — unexpected to many Western experts — in the face of punishing sanctions. People walk past an exchange office screen showing the exchange rates of the U.S. dollar to the Russian ruble in St. Petersburg, Russia, in April ALSO: In Russia's War Economy, The Warning Lights Are Blinking The Kremlin has retooled the economy to power its war, pouring money into defense industries to churn out guns, tanks, drones, and uniforms. It's poured money into wages for defense industry workers and paid soldiers sky-high salaries and benefits to entice them to fight in Ukraine. That's transformed local economies in many of the country's poorer, remote regions, and also bought support for the conflict. But high wages have fueled inflation, and Nabiullina hiked the key interest rate to 21 percent in October to try and tamp it down. Despite public complaints from the country's industrial lobby, she has held firm, committed to slowing inflation and downshifting the economy. It's working, and now Russia is facing the first significant economic slowdown since the start of the full-scale war. 'I think a lot of indicators point to growth stopping, or close to it,' said Iikka Korhonen, head of research at the Bank of Finland's Institute for Emerging Economies. 'Manufacturing is still growing, but most other things are not.' 'For two years [the] Russian economy was overheated and growing at a pace way above its normal growth rate,' said Alexander Kolyandr, an economics expert with the Center for European Policy Analysis in Washington. 'So what's happening now is the economy returns to where it should be. For the moment it stands as a correction, coming back to the long-term growth rate.' 'The main challenge for the government at this point is to make this a soft landing, rather than a complete collapse,' he said. With the Russian war effort now in full flow, millions of Russians have been working in factories, manning around-the-clock shifts. (file photo)SEE ALSO:For Some In Russia's Far-Flung Provinces, Ukraine War Is A Ticket To ProsperityWhat Comes Next? Russia's gross domestic product grew by 1.4 percent in the first three months of the year, compared with the same period in 2024, according to government statistics. In the last six months of 2024, however, the economy was humming along — with average growth of around 4.4 percent. Official estimates now forecast GDP growth at around 2 percent in 2025. The International Monetary Fund predicts even lower growth — 1.5 percent. The unemployment rate stands at a historic low of around 2.3 percent, underscoring how distorted the labor market has become as men are drawn away from civilian jobs to fight in Ukraine. Faced with inflation running at over 10 percent in the first half of 2025, Nabiullina has warned repeatedly about an 'overheated economy.' In early June, she engineered a small rate cut, to 20 percent, which experts called largely symbolic. But the impact of the high interest rate is showing up in official statistics, according to data and forecasts from the Center for Macroeconomic Analysis and Short-Term Forecasting, a government-linked research group. For some in the Kremlin, a soft landing would be a welcome correction to the two torrid previous years. The danger is if it becomes a hard landing. 'By keeping the key rate very high, despite the state continuously pumping money into the economy, they have been able to achieve economic slowdown,' said Maria Snegovaya, a senior fellow in the Russia program at the Washington-based Center for Strategic and International Studies. The Kremlin has sought to avoid any mass mobilization of Russian men to fight in Ukraine. A September 2022 order for a partial mobilization was widely ALSO: More War, Less Money: What A Cut In Signing Bonuses May Reveal About Russia's Fight In Ukraine 'It's unclear how sustainable the situation is for the Kremlin if the economy is actually declining. It's not something that they want either,' she said during an online discussion on June 17. 'In general, the Russian macroeconomic team seems to be quite concerned.' What this means politically is harder to predict. So far, President Vladimir Putin has given Nabiullina and other top economic officials his blessing for their handling of the economy. A day after the panel discussion at the St. Petersburg forum, Putin weighed in himself, with a cautionary note in a speech at the business forum: 'Some specialists, experts, point to the risks of stagnation and even recession,' he said. 'Of course, this should not be allowed under any circumstances.' 'Our most important task this year is to transition the economy to balanced growth,' Putin said. President Vladimir Putin applauds during a plenary session of the St. Petersburg International Economic Forum on June Vladimir Putin applauds during a plenary session of the St. Petersburg International Economic Forum on June 20. With other parts of the economy crimped by sanctions, Kremlin coffers are even more heavily dependent on oil and gas revenues than they have been in the past. But oil prices have fallen since the beginning of the year, and the Finance Ministry has lowered its forecast for oil-linked revenues for 2025. 'Unless we see a decline in oil prices, [or] some significant increase in sanctions enforcement, and an overall decline in civilian production, then I think there will be a soft landing,' Kolyandr said. Balanced — or slower — growth will ripple through the economy, putting a brake on wage growth. It will also crimp household budgets at a time when Russians have been accustomed to fatter wallets, which could fuel discontent. A growing number of companies and factories are also falling behind in wage and salary payments to workers, according to the newspaper Nezavisimaya Gazeta. And a growing number of regions have started cutting recruitment bonuses for new volunteer soldiers — a trend that reflects worsening economic conditions on a local level. Still, Putin seems determined to push forward in the war — even faced with eyewatering casualty rates that are approaching 1 million men killed or wounded. The government plans on spending about 13.1 trillion rubles ($144 billion) on defense- and security-related expenditures in 2025. That's 6.3 percent of its GDP, one of the highest levels since the Soviet era. 'Unfortunately, yes, this war will not stop for economic reasons, and Russia can continue to produce [weaponry] at the current level for quite a while,' Korhonen said. 'The only economic factor that could really hamper Russia's war effort is the price of oil.'
Reuters
02-07-2025
- Business
- Reuters
Russia's jobless rate hits new all-time low in May
MOSCOW, July 2 (Reuters) - Russia's unemployment rate, seen by the central bank as a key indicator of economic overheating, hit the new all-time low level of 2.2% of the workforce in May, statistical data showed on Wednesday, compared with 2.3% the previous month. Economists in the Reuters poll predicted no change in the unemployment rate. Central bank Governor Elvira Nabiullina said earlier on Wednesday that there were signs of easing in the severity of labour market shortages. Russian statistical agency Rosstat provided the following data:
