| | | Putin ally issues dire warning about Russian economy
Story by Brendan Cole
• 5h
The head of Russia's biggest bank said the country's wartime economy is in stagnation and warned only urgent measures can avoid a recession.
CEO of Sberbank, German Gref, an ally of President Vladimir Putin, has called for Russia's Central Bank to make drastic cuts to the historically high key interest rate it set to cool runaway inflation.
However, Richard Portes, an expert on the Russian economy from the London Business School told Newsweek that even the cuts Gref proposes would not be enough to fix the entrenched problems of the Russian economy caused by Putin's war in Ukraine.
"The Russian economy is not only stagnating, it's declining, " he said.
Newsweek has contacted the Russian Central Bank for comment.
Why It MattersThe Russian president has increased military spending to record levels, stoking inflation that the Central Bank has tried to cool with a high key interest rate that has reached 21 percent and is now 18 percent.
Business leaders have complained this has stifled investment and had other negative effects for the economy, which is suffering from a worker shortage and sanctions. As one of the key finance figures in Russia, the comments by Gref add weight to this chorus of criticism.
What To KnowRussia has weathered tough sanctions with its economy growing by 4.1 percent in 2023 and 4.3 percent in 2024, although this has been bolstered by high military spending as Putin seeks to fund his war.
However, this growth is slowing under the weight of a high Central Bank key interest rate, aimed at curbing the official inflation rate. This is now 8.8 percent and officials have expressed concern about the crippling cost of credit.
Russia's Finance Minister Anton Siluanov told Putin last week that growth was likely to drop to 1.5 percent in 2025, much less than the 2.5 percent that had been forecast.
On Thursday, Gref, a former economy minister, told reporters on the sidelines of the Eastern Economic Forum in Vladivostok that in the second quarter of 2025 the economy looked as if it was in "technical stagnation" and bank data showed that growth was close to zero in July and August.
Gref also said that even cutting the key interest rate to 14 percent by the end of the year would not be enough to revive the economy and that slashing the level to 12 percent was needed, Reuters reported.
But Portes, economics professor at the London Business School, told Newsweek that Gref knows he cannot say the stagnation is caused by the dysfunctionalities of the war economy and the fall in labor supply.
As a war economy, the engines of growth in Russia have dried up and a major issue is the depletion of Russia's labor force, a shortage exacerbated by troop losses in Ukraine and an exodus of those fleeing the draft, Portes said.
Also, the shift from producing for consumption to producing for defense production creates tensions, which are also a source of inflationary pressure.
Despite Gref's comments, cutting interest rates to 14 percent or lower are not going to stimulate the Russian economy, "nor do I think that it's likely," Portes added.
What People Are SayingSberbank CEO German Gref: "Reviving the economy will be much more difficult than cooling it down…at current inflation levels, the rate at which we can hope for economic recovery is 12 percent or lower."
Richard Portes, economics professor at London Business School, told Newsweek: "I think the Russian economy is in a very bad state, and it's not going to get better…the problems of the Russian economy are not due to high central bank interest rates."
What Happens NextGref's comments add pressure on Elvira Nabiullina, the governor of the Central Bank ahead of its next meeting on September 12, amid anticipation over whether the key interest rate will be lowered. |
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