Russia’s economy ‘in stagnation’ as war takes toll
Russia’s economy has “moved into a period of stagnation” after initial war efforts boosted output in the country, amid growing hopes in the West that further sanctions have been successful in limiting its growth.
Four years on from the start of President Vladimir Putin’s full-scale invasion of Ukraine, economists have flagged the threats faced by Russia’s economy.
The Russian economy enjoyed growth of around four per cent after the start of the war, boosted by fiscal stimulus on military expenditure.
But Liam Peach, senior emerging market economist at Capital Economics, said the Russian economy was now set to face a period of GDP growth below one per cent while lower oil export volumes could widen the country’s budget deficit beyond 4 per cent and force further austerity measures.
But Peach said the West’s sanctions regime had largely proved too weak at hitting Russia’s energy sector despite having “reduced Russia’s access to advanced technology and weighed on its potential growth”.
The main setback of sanction regimes involved the entry of components and Western goods though third countries such as Kazakhstan and the use of a “shadow fleet” of tankers.
“Putin seems willing to bear heavy economic costs to achieve his goals around issues of Ukraine’s sovereignty, security and territory,” Peach said.
Inflation surges
Capital Economics analysts added that the main vulnerability faced by Russia was in its banking system off the back of double-digit inflation and steep credit growth.
Higher income, corporate and consumption tax rises have managed to partly make up government expenditure but greater debt issuance at a fast pace could lead to steep debt servicing costs over the coming years, it was suggested.
On Tuesday, the UK government announced a new sanctions package on dozens of individuals, energy companies, banks and businesses across the shipping industry.
Foreign secretary Yvette Cooper said 300 sanctions announced on the fourth anniversary of the war represented the “largest raft of measures since the early months of the invasion”.
Starmer hits out at Putin’s Russia
Government officials have argued that sanctions have deprived the Russian economy of some $450bn, with oil revenues falling to their lowest level since the pandemic.
Energy tax revenues are projected to fall by another 20 per cent this year.
In a series of interviews, Ukraine’s President Volodymyr Zelensky has warned that Putin had started World War 3 as he pleaded with President Trump to put more pressure on the Russian leader during lengthy peace negotiations.
At the Cabinet meeting on Tuesday morning, Sir Keir Starmer said he had images of injured Ukrainian soldiers and handcuffed civilians “etched” in his mind, adding that the UK had a duty to “defeat the falsehood that Russia is winning”.
“Let’s be clear in terms of getting to that just and lasting peace – it is Putin who is standing in the way,” Starmer said.
“[Zelenskyy has] taken the lead. It is Putin who is standing in the way. And that’s why we must always double down on our support for Ukraine. That means capability. It means resource. It means more sanctions.”
Starmer is holding a series of ‘Coalition of the Willing’ meetings on Tuesday with Zelensky and other world leaders to discuss sending armed forces to protect Ukraine’s territory after a peace deal is struck.