Despite being isolated from the global financial system and enduring severe sanctions, Russia’s economy has managed to remain resilient in recent years, aided by countries like China and India. However, with its sovereign wealth fund nearing depletion and mounting financial pressures, Moscow’s economic outlook is deteriorating.
Russia has spent over half of its sovereign wealth fund to stabilize the ruble, but even with this intervention, the currency recently hit its lowest value since the beginning of the war. Skyrocketing borrowing costs are now threatening to strain Russian consumers further. The Bank of Russia’s interest rates remain high at 21%, with little room to reduce them, creating a “year of consumer retrenchment” in 2025.
With weakening fiscal buffers, Russia is on the verge of transitioning to a full “war economy.” This transformation will likely involve prioritizing military needs over consumer welfare, redirecting resources to sectors crucial for the war effort. The country’s economic growth is expected to slow to just 1% next year, a sharp decline from previous projections, compounded by negative demographic trends, a lack of productivity gains, and constrained investment. The end of the war might not offer much relief, as Russia struggles with limited growth drivers and depleting reserves.
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