Latest news with #MaximReshetnikov
Yahoo
22-06-2025
- Business
- Yahoo
Russia's economy boomed after the invasion of Ukraine—it's now running out of steam
After years of anticipated economic strife, Russian authorities warn the country is on the precipice of a recession as the Kremlin's bloated military spending amid its ongoing invasion of Ukraine exacerbates underlying labor shortages and rising inflation. Russia's wartime economy, once defiant in the face of Western sanctions and geopolitical isolation, is showing signs of fatigue. On Thursday, Russia's economy minister Maxim Reshetnikov warned the country was 'on the brink' of a recession at the St. Petersburg Economic Forum. Reshetnikov's declaration confirmed what several economists foresaw earlier this year: Russia's high-spending war economy, after years of defying predictions of imminent recession, is finally running into the hard limits of labor, productivity, and inflation. Russia's 2022 invasion of Ukraine prompted a slew of sanctions by Western nations, and the near-total departure of Western companies from the nation. But despite predictions of its imminent demise, the country's economy has held up fairly well by pursuing what economists call 'military Keynesianism,' fueling growth through massive defense-related fiscal spending. By pouring a record number of resources into the military-industrial complex, which reached a value of $167 billion last year, the Kremlin spiked industrial production, drove two consecutive years of GDP growth, and lifted wages across war-related sectors. For decades, the Kremlin has allowed Russia's defense budget to grow faster than the country's GDP, but the budget expenditures have increased enormously since the start of Russia's invasion of Ukraine. In 2021, the country spent 3.6% of its GDP on national defense, according to the World Bank. Now, 6.3% of the GDP goes to defense spending, nearly double the share in the United States. Russia's military spending bubble has created what Elina Ribakova, economist at the Peterson Institute for International Economics describes as a game of musical chairs. 'Everybody's making money. Suddenly, people are enjoying higher incomes, and can get a mortgage, or buy durables. It makes this war popular in a practical, morbid way. You want the music going,' she explains. But, as Nicholas Fenton, associate director at the Center for Strategic and International Studies warns, 'You can only kind of spend so much before you hit structural limits in the economy. And the big hang up for the Russian economy throughout this period has been the country's chronic labor shortage.' Prior to Russia's invasion of Ukraine, the country reported 4.75% unemployment in 2021, with levels hitting a record 2.4% low in early 2025, according to state-reported data. But as unemployment has declined, the country has also witnessed a mass exodus of as many as one million residents, and has suffered significant military deaths in the hundreds of thousands. These figures have exacerbated a pre-existing worker deficit in Russia due to a declining working-age population. In 2022 alone, the number of workers aged 16 to 35 fell by 1.33 million, and their share of the labor force was the lowest on record since 1996. These preexisting shortages in the labor market have compounded as citizens were drafted, emigrated, or flocked to defense-related jobs with lucrative bonuses. Although real wages increased, productivity didn't, fueling inflation and the threat of stagflation outside of the military, and stifling investments in non-defense sectors. This spring, Russia's manufacturing sector, an industry that also includes defense enterprises, suffered its steepest downturn in close to three years, dropping 2 points from February to March. Similarly, Russia's industrial production growth hit a two-year low, increasing only 0.2% year-on-year. All the while prices have continued to increase, growing by 9.52% last year compared to 7.42% in 2023. Currently, inflation in Russia sits at nearly 10% and the central bank's hawkish stance has interest rates up to 20% in June. Meanwhile, the central bank's growth forecast is between 1 and 2% for 2025. Interest rates may be shifting, however: senior officials and Russian businessmen have repeatedly called for cuts to promote growth, and President Vladimir Putin has urged policymakers to strike a balance between fighting inflation and boosting growth. Ultimately, for the country's growth potential to change, the country would need to improve labor productivity, a difficult feat amid persisting sanctions and significant inflation, according to Alexander Kolyandr, senior fellow at the Center for European Policy Analysis. On a per-capita basis, the nation's GDP lags far behind peers, closer to that of Mexico or Turkey than Western Europe. And unlike Germany or Japan, Russia's growth is heavily dependent on volatile commodity exports, such as oil, and state-driven demand. Oil and gas revenues which account for around 20% of the country's GDP, underscoring the precarious nature of its fiscal health. In the first half of 2025, falling oil exports and a dip in global prices forced the Kremlin to revise its budget deficit. But the growing conflict between Israel and Iran has already pushed oil prices higher, offering Russia potential temporary budgetary relief. 'The war in the Middle East is actually pretty good for Putin, but that wouldn't save the economy. It just means that the government may continue to maintain this policy of managed decline,' Kolyandr tells Fortune. Ribakova agrees with Kolyandr. 'We were sort of rubbing our hands as oil was going down because that's the most effective sanction against Russia. And of course, now we've seen the prices pick up,' she says. Russia's oil exports, however, don't provide a solution to the lack of foreign investments in the country and the total retreat of American companies. Even with President Donald Trump's hands-off approach to diplomacy with the Kremlin, Charles Kupchan, senior fellow at the Council on Foreign Relations, sees the return of U.S. businesses to Russia as a key bargaining chip. 'Trump is saying to Vladimir Putin, 'if you're ready to make a deal and end this war and agree to a ceasefire in place, I can envisage a return of American companies to Russia. I can envisage the rehabilitation of Vladimir Putin,'' he says. This story was originally featured on
The Star
21-06-2025
- Business
- The Star
Russia signs investment deal with Myanmar, sees offshore oil and gas prospects
ST PETERSBUR (Reuters): Russia signed an investment agreement with Myanmar on Friday that it said could open up new opportunities for Russian energy companies in the south Asian country. "We especially note the readiness of the Myanmar side to attract Russian companies to the development of offshore oil and gas fields," Economy Minister Maxim Reshetnikov said after signing the agreement in St Petersburg with Kan Zaw, Myanmar's minister of investment and foreign economic relations. Russia said the deal would help accelerate projects including in Myanmar's Dawei special economic zone, where a 660 MW coal-fired thermal power plant is being developed. Russia has been building closer ties with Myanmar's military junta, which seized power in 2021 by toppling the elected government of Nobel peace prize winner Aung San Suu Kyi. The country is struggling with internal conflict, an economy in tatters, widespread hunger and a third of the nation's 55 million people in need of aid, according to the United Nations. Junta chief Min Aung Hlaing met Russian President Vladimir Putin in March and signed an agreement on construction of a small-scale nuclear plant in Myanmar. A month earlier, the two countries signed a memorandum on construction of a port and oil refinery in the Dawei economic zone. Friday's agreement will also facilitate cooperation in areas including transport infrastructure, metallurgy, agriculture and telecommunications, the Russian government said. (Reporting by Reuters, writing by Mark Trevelyan Editing by Gareth Jones) - Reuters
South Wales Guardian
20-06-2025
- Business
- South Wales Guardian
Putin boasts about Russia's economy despite recession fears
His optimistic account in a speech at the St Petersburg International Economic Forum contrasted with sombre statements by some members of his government, who warned at the same conference that Russia could face a recession. Economic Minister Maxim Reshetnikov had said that the country is 'on the brink of going into a recession'. Mr Putin mentioned the recession warnings, but emphasised that 'it mustn't be allowed'. He pointed out that manufacturing industries have posted steady growth, allowing the country to reduce its reliance on oil and gas exports. 'The perception of Russian economy as based on raw materials and dependent on hydrocarbons exports have clearly become outdated,' Mr Putin said, adding that the economy grew by 1.5% in the first four months of 2025 and inflation has dropped from double digits to 9.6%. Mr Putin has used the annual forum to highlight Russia's economic prowess and encourage foreign investment, but Western executives have shunned it after Moscow sent troops into Ukraine in 2022, leaving it to business leaders from Asia, Africa and Latin America. The economy, hit with a slew of Western sanctions, has so far outperformed predictions. High defence spending has propelled growth and kept unemployment low despite fuelling inflation. Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine also have put more income into the country's poorer regions. But over the long term, inflation and a lack of foreign investments pose threats to the economy. Economists have warned of mounting pressure on the economy and the likelihood it would stagnate due to lack of investment in sectors other than the military. Mr Putin said the growth of military industries helped develop new technologies that have become available to the civilian sector. He vowed to continue military modernisation, relying on lessons learned during the fighting in Ukraine. 'We will raise the capability of the Russian armed forces, modernize military infrastructure and equip the troops with cutting-edge equipment,' Mr Putin said.
North Wales Chronicle
20-06-2025
- Business
- North Wales Chronicle
Putin boasts about Russia's economy despite recession fears
His optimistic account in a speech at the St Petersburg International Economic Forum contrasted with sombre statements by some members of his government, who warned at the same conference that Russia could face a recession. Economic Minister Maxim Reshetnikov had said that the country is 'on the brink of going into a recession'. Mr Putin mentioned the recession warnings, but emphasised that 'it mustn't be allowed'. He pointed out that manufacturing industries have posted steady growth, allowing the country to reduce its reliance on oil and gas exports. 'The perception of Russian economy as based on raw materials and dependent on hydrocarbons exports have clearly become outdated,' Mr Putin said, adding that the economy grew by 1.5% in the first four months of 2025 and inflation has dropped from double digits to 9.6%. Mr Putin has used the annual forum to highlight Russia's economic prowess and encourage foreign investment, but Western executives have shunned it after Moscow sent troops into Ukraine in 2022, leaving it to business leaders from Asia, Africa and Latin America. The economy, hit with a slew of Western sanctions, has so far outperformed predictions. High defence spending has propelled growth and kept unemployment low despite fuelling inflation. Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine also have put more income into the country's poorer regions. But over the long term, inflation and a lack of foreign investments pose threats to the economy. Economists have warned of mounting pressure on the economy and the likelihood it would stagnate due to lack of investment in sectors other than the military. Mr Putin said the growth of military industries helped develop new technologies that have become available to the civilian sector. He vowed to continue military modernisation, relying on lessons learned during the fighting in Ukraine. 'We will raise the capability of the Russian armed forces, modernize military infrastructure and equip the troops with cutting-edge equipment,' Mr Putin said.
Leader Live
20-06-2025
- Business
- Leader Live
Putin boasts about Russia's economy despite recession fears
His optimistic account in a speech at the St Petersburg International Economic Forum contrasted with sombre statements by some members of his government, who warned at the same conference that Russia could face a recession. Economic Minister Maxim Reshetnikov had said that the country is 'on the brink of going into a recession'. Mr Putin mentioned the recession warnings, but emphasised that 'it mustn't be allowed'. He pointed out that manufacturing industries have posted steady growth, allowing the country to reduce its reliance on oil and gas exports. 'The perception of Russian economy as based on raw materials and dependent on hydrocarbons exports have clearly become outdated,' Mr Putin said, adding that the economy grew by 1.5% in the first four months of 2025 and inflation has dropped from double digits to 9.6%. Mr Putin has used the annual forum to highlight Russia's economic prowess and encourage foreign investment, but Western executives have shunned it after Moscow sent troops into Ukraine in 2022, leaving it to business leaders from Asia, Africa and Latin America. The economy, hit with a slew of Western sanctions, has so far outperformed predictions. High defence spending has propelled growth and kept unemployment low despite fuelling inflation. Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine also have put more income into the country's poorer regions. But over the long term, inflation and a lack of foreign investments pose threats to the economy. Economists have warned of mounting pressure on the economy and the likelihood it would stagnate due to lack of investment in sectors other than the military. Mr Putin said the growth of military industries helped develop new technologies that have become available to the civilian sector. He vowed to continue military modernisation, relying on lessons learned during the fighting in Ukraine. 'We will raise the capability of the Russian armed forces, modernize military infrastructure and equip the troops with cutting-edge equipment,' Mr Putin said.
