Pedestrians walking past posters celebrating Russian troops in Moscow. — ©2025 The New York Times Company
THE wartime economy that Russia spurred into overdrive is slowing, causing tensions among the country’s economic elites as the war with Ukraine approaches its fourth year.
Many Russian civilian industries have stopped growing, and some had even gone into decline by October, according to the latest official data.
The country’s currency, the ruble, has dropped to its weakest level in two years, and businesses say they are struggling to get new loans or to get paid by clients.
The central bank sharply raised the country’s benchmark interest rate in October to 21%, the highest since the end of the Soviet Union, in an attempt to dampen inflation.
Last month, the central bank also lowered its forecast for Russia’s economic growth next year to 0.5% to 1.5% compared with 3.5% to 4% this year. The slowdown comes even as the government continues to pump record amounts of money into the economy to finance the war.
The combination of rising prices and falling economic activity has led some economists and officials to warn that the Russian economy is moving toward stagflation, a quagmire where prices rise quickly without growth.
Western nations have subjected Russia over the past three years to some of the strictest economic sanctions in modern history to punish President Vladimir Putin for his invasion of Ukraine.
Russia’s slowing growth and rising inflation, economists say, show that the sanctions are having an impact, putting a dent in the stimulating effect that the Kremlin’s enormous wartime spending has had on the economy, they say.
Civilian companies are particularly feeling the pinch.
The Russian Railways, the country’s largest employer, which transports a large share of the nation’s goods and passengers, reported that its freight volume fell almost 9% in October compared with a year ago. To compensate for falling demand, it is raising prices more than 10% and trimming planned investment for 2025 by a third.
Still, the data suggest that the economic strains are far from provoking the kind of crisis that might compel Putin to curtail his ambitions in Ukraine.
The immediate casualty of the downturn could become Russia’s central bank, arguably the last state entity in the country that has operated somewhat independently from the Kremlin.
There are rising tensions between Russia’s industrialists and the bank over the cost of borrowing that could have far-reaching consequences, including what type of economy Russia will inherit after the war.
The disagreements have emerged in public speeches and economic reports, part of a delicate dance around the elephant in the war room: the inability to blame the war for the slowdown, which would risk Putin’s ire.
Instead, Russia’s economic elites are blaming technical policy decisions, and one another, exposing the tensions behind a facade of wartime unity.
Industrialists and allied officials have directed their complaints at the central bank’s chief, Elvira Nabiullina, accusing her of suffocating the economy with record interest rates.
Nabiullina has forcefully defended her monetary shock therapy, arguing it is necessary to reduce the 9% annual inflation by half next year and ensure long-term economic stability.
“It is clear that if you’re an entrepreneur in Russia who doesn’t make, say, ballistic missiles, then you’re having a tough time,” said Alexander Kolyandr, a Russian economy expert at the Centre for European Policy Analysis. “But because you cannot fight the root cause, you fight the symptoms.”
New US sanctions on Russian banks in November have contributed to a large decline in the value of the ruble. The ruble fell to 109 against the US dollar at the end of last month, its weakest rate since March 2022.
The ruble’s decline means that Russian companies must pay more for foreign goods, feeding inflation and weakening the effectiveness of Nabiullina’s interest rate shock therapy, said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Centre in Berlin and a former official at the Russian central bank.
To be sure, economists say the Russian economy will not collapse in the foreseeable future.
Wages continue outstripping inflation, raising the standard of living of ordinary Russians and denting the impact of the slowdown on the population, according to the Centre for Analysis and Strategies in Europe, or CASE, a Cyprus-based group of opposition Russian economists.
Real wages in Russia grew nearly 18% since the start of the war, reversing a seven-year decline, the economists said in a recent report.
Inflation, although stubborn, remains in the single digits, and the Kremlin maintains ample means to finance the war, the CASE economists said.
The Russian government is raising taxes on companies and wealthy individuals and is tapping into its sovereign wealth fund.
The government’s low debt burden – about 18% of economic output – means it has ample room to keep borrowing from Russian banks.
The battle over Russian interest rates underlines longer-term economic tensions, Prokopenko said.
The Kremlin’s seemingly endless war has persuaded Russian business elites to seek short-term profit in an overheated economy over long-term investment.
The growing calls for cheap money now threaten to dismantle a system of economic checks and balances that have kept the Russian economy stable over most of Putin’s rule, Prokopenko added.
“If a warring nation can’t present to its people an idea of a bright future, then it makes sense to stuff yourself while the party lasts,” she said.
“You may not have that chance later.” — ©2025 The New York Times Company
