Russia‘s Economy faces Mounting strain as War Costs and High Interest Rates Trigger Recession Fears
Moscow – Russia’s economy is showing increasing signs of strain as the costs of the war in Ukraine, coupled with soaring interest rates, create conditions reminiscent of a recession, experts warn. The situation is described as a “vicious circle” by the Center for Strategic Development (CSR), were mounting debts lead to poor credit ratings, further deteriorating credit conditions for companies and increasing the risk of widespread insolvencies.
the pressure is intensifying as Russia increasingly relies on its citizens to fund the war effort. A recent value-added tax (VAT) increase is forcing “the population [to] assume the costs of the war,” even as many Russians report struggling to afford basic necessities like food.
This consumption tax poses a further threat to businesses outside the defense sector, as rising prices for everyday goods curtail consumer spending. Andrey Gurkov, an expert, explained to daily news in September that the focus on the Russian defense industry is “considerably” damaging the private sector. ”Russia’s great economic plague is the remarkably high inflation caused by the war,” Gurkov stated, adding that the key interest rate is becoming unsustainable for many companies.
The economic hardship is creating a volatile political landscape for President Vladimir Putin. The previously held societal agreement of prioritizing consumption and wealth accumulation over political engagement has been fractured by the war. A triumphant outcome in Ukraine is now seen as crucial for Putin’s continued rule. “He has to present a victory to the nation,” a source explained, suggesting that public tolerance for economic difficulties may hinge on perceived military success. “People may have to line up at the gas station, but if Russia wins this war, he would be forgiven.” This explains Putin’s resistance to ceasefire attempts, the source added.
