Milk, potatoes, and butter prices are soaring in Russia. Retailers are increasing security measures to prevent theft, mortgage rates have spiked, and new home sales are plummeting.
More than 1,000 days since Moscow launched its full-scale invasion of neighboring Ukraine, Russia has reshaped its economy, reorganizing it to bolster the war effort and counter Western sanctions.
Government spending on items like tanks, missiles, and military uniforms has fueled growth across the country. Exceptionally high wages for volunteer soldiers—along with cash benefits for widows—have funneled significant funds into poorer regions.
On the other hand, inflation is surging. Russia’s Central Bank has struggled to curb it, raising the key interest rate to 21% in October—the highest level in over 20 years.
Experts warn that alarm bells are ringing. There’s growing concern over an impending wave of corporate bankruptcies as companies increase wages to attract workers in a shrinking labor force. Meanwhile, rising mortgage rates, driven by Central Bank policy, are discouraging citizens from buying property in many Russian regions.
“The market is dead,” said a real estate agent who spoke to Current Time on condition of anonymity, fearing retaliation from authorities. “The market is frozen; nothing is happening.”
Economic growth “is undoubtedly slowing,” said Laura Solanko, a senior advisor at the Bank of Finland Institute for Economies in Transition.
“The economy is overheated, and the growth rate must slow down,” she explained. “But very slow growth—or no growth—doesn’t mean the economy is on the verge of collapse. It signals slower investments and a reduction in some public spending in the coming months.”
Despite Western sanctions and efforts to sever trade with Russia, government spending on the war pushed GDP growth to 3.6% last year. This year, projections suggest the economy will grow by 3.9%.
Meanwhile, unemployment fell to 2.4% in September, with labor shortages helping drive up wages.
High interest rates have not only impacted the real estate market. Corporate debt growth has made borrowing significantly more expensive for companies looking to expand operations—or raise wages to compete with workers opting to enlist and fight in Ukraine. In some regions, men can earn the equivalent of a year’s salary simply by signing up to fight.
Business leaders’ dissatisfaction with the Central Bank has already surfaced.
Sergei Chemezov, head of the state-owned industrial conglomerate Rostec and an ally of Russian President Vladimir Putin, complained before the recent rate hike that high interest rates were “a serious obstacle to further industrial growth.”
“Conservative financial policy could lead to stagflation,” Chemezov warned.
“At the current pace, it’s more profitable for companies to halt development or even scale back operations and place their funds in deposits than to conduct business and face associated risks,” said Alexei Mordashov, a Kremlin-linked oligarch and head of Russia’s largest steel company, in October.
Chemezov and other business leaders have also warned about an increase in corporate bankruptcies.
The Russian Central Bank predicts an economic slowdown due to higher interest rates. In 2025, growth is expected to shrink to between 0.5% and 1.5%.
Experts have cautioned that Central Bank policy risks pushing the economy into stagflation—a combination of slowed economic growth and high inflation. A government-linked institute highlighted this danger in a report published on November 13.
“The current high key interest rate and indicators of further increases have created a risk of economic contraction and an investment collapse in the near future,” the report stated.
The Central Bank’s chairwoman, Elvira Nabiullina, appeared to defend some of the institution’s fiscal policies and sought to reassure critics. She also dismissed concerns over stagflation.
“The Russian economy is at a turning point, and a slowdown in inflation can be expected in the coming months,” she said.
Moscow appears unbothered by “some bankruptcies,” said Janis Kluge, a Russian economy expert at the German Institute for International and Security Affairs, arguing that they are “necessary to bring inflation under control.”
Bankruptcies “should also help recruit” men to fight in Ukraine, Kluge said, as Russians “unable to repay their debts are more likely to agree to join the military.”
“Overall, the economic situation is set to become far more complicated for Russia,” Kluge concluded. “For nearly three years, it seemed like everyone was profiting from this war. But now it’s becoming clear that this won’t last, and a price must be paid.”
