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Is Russia Facing a Stagflation Crisis?

2024-11-16 00:36:32.888000

The Russian economy is increasingly showing signs of stagflation, raising concerns among economists and policymakers. Recent forecasts predict that GDP growth for 2025 will be between 0.5% and 1.5%, a significant decline from previous expectations. The Central Bank's latest report indicates a worrying 2.9% decline in payment volume in October, suggesting a contraction in economic activity [a7d11880].

Industrial output data has also revealed a slowdown across various sectors, prompting Prime Minister Mikhail Mishustin to acknowledge a decrease in capital investment activity. Business leaders are expressing frustration over the Central Bank's high interest rates, currently set at 21%, which they argue are stifling growth and investment [a7d11880].

Inflation has surged to 8.56% in early November, compounding the challenges facing the economy. This is particularly concerning given that GDP growth in the third quarter was reported at 3.1%, down from 4.1% in the second quarter, indicating a clear downward trend [a7d11880].

The head of the Central Bank, Elvira Nabiullina, is under pressure from industrialists to reconsider the high interest rates, as businesses struggle to cope with the dual pressures of rising costs and stagnant growth. Additionally, U.S. secondary sanctions are further complicating the landscape for Russian businesses, limiting their operational capabilities and access to international markets [a7d11880].

In a related note, Deputy Defense Minister Anna Tsivileva has proposed reducing payments to injured soldiers, reflecting the broader economic strain and the need for budgetary adjustments amid declining revenues [a7d11880]. The combination of these factors paints a troubling picture for Russia's economic future, as the country grapples with the prospect of stagflation and its implications for both businesses and the government.

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