If the question is how Russia’s economy is doing, the answer surely depends on who you ask. A few weeks ago, The New York Times published a report where he explained the tensions that exist between the Russian elites as economic growth slows of the nation. They signed up the sanctions and the war itself, but in the face of rhetoric, Moscow responded that they would endure all threats. Sweden was not so clear, and claims to have evidence of the real situation.
Stagnation and signs of slowdown. As we have told other timesthe war economy that Russia launched at full speed after the invasion of Ukraine appears to be showing signs of significant slowdown. In fact and as the Times emphasizedeven generating tensions among the country’s economic elite as the conflict enters its fourth year.
According to recent official data, many civil sectors have stopped growing and have even begun to declinewhich has exacerbated economic uncertainty. The Russian currency, the ruble, fell three weeks ago to its lowest level in two yearsand companies face difficulties in obtaining new loans or receiving payments from customers, reflecting an increasingly restrictive financial environment.
Rise in interest rates. The response of the Central Bank of Russia has been a drastic rise in reference interest rates, reaching 21% in October, the highest level since the fall of the Soviet Union. Despite efforts to contain inflation, the economic growth forecast for the new year has been revised downwards, standing between 0.5% and 1.5%well below the 3.5% to 4% recorded in 2024.
In the background, the elephant in the room: the slowdown occurs despite the continued record government spending to finance the warwhich indicates that economic stimuli are no longer having the same effect. Economists and officials have begun to warn about the imminent risk of so-called stagflationa dangerous combination of price increase without economic growth.
The impact of sanctions and the Russian response. The strict economic sanctions imposed by the West in response to the invasion of Ukraine have limited Russia’s ability to maintain its military-spending-fueled growth. In this regard, the Kremlin has insisted that it has withstood the impact of sanctions, but slowing growth and rising inflation indicate otherwise.
Civilian businesses, in particular, have been hardest hit by the economic crisis. For example, Russian Railways, the country’s largest employer, reported a 9% drop in cargo volume transported last October compared to the previous year. To counteract this decline, the company has announced a price increase of more than 10% and has reduced its investment plans for 2025 by a third. Despite this, experts consider that the crisis is not yet serious enough enough to force President Vladimir Putin to reconsider his ambitions in Ukraine.
Conflict Central Bank and the industrial elite. One of the main points of conflict within the Russian economic elite is the relationship between the Central Bank of Russia and the country’s leading industrialists. The bank’s governor, Elvira Nabiullina, has implemented a strict monetary policy to curb inflation, which has generated criticism from businessmenwho argue that record-high interest rates are stifling growth.
In response to these, Nabiullina recently defended his strategy before Parliament, arguing that all the country’s economic resources are being used to the maximum and that macroeconomic stability should not be sacrificed for accelerated growth. However, its position has become increasingly isolated in an environment in which Business interests demand more flexible measures to sustain their operations in a context of growing uncertainty.
Distrust in official figures. And in the face of domestic rhetoric, Western officials have expressed skepticism about the veracity of the economic data provided by the Kremlin, arguing that the official figures do not accurately reflect the reality of the Russian economy. In this regard, the Minister of Finance of Sweden, Elisabeth Svantesson, expressed during the World Economic Forum in Davos that Russia is presenting an image of economic stability that does not match the real situation.
According to Svantesson, government statistics, which put inflation at 9.5%are not credible considering that the Central Bank of Russia has raised interest rates to 21%a discrepancy that suggests much greater inflationary pressure than is officially recognized. Furthermore, the continued flight of capital is another indicator of the country’s economic difficulties, which a priori contradicts the Kremlin’s narrative of resistance to Western sanctions.
The “trick” of space. Thus, and given the lack of confidence in Russian data, Western officials have resorted to alternative methods to assess the nation’s economic health, including in the equation analysis of night satellite images of Moscow.
Svantesson pointed out that city lighting in 2023 was visibly dimmer compared to 2021which, in his opinion, suggests lower energy consumption and, therefore, a decline in economic activity. In fact, comparative photographs from media like Business Insider showed that, although factors such as cloud cover and time of day can influence perception, in general a pronounced decrease in illuminated areas is observed, especially in the suburbs of the capital, which could point to this deterioration in the level of life and possible cuts in the electricity supply.
Manipulation of the economic narrative. Svantesson went a little further, and even emphasized that the Russian government’s official narrative seeks to convince Ukraine and its allies that sanctions have not had the desired impact. However, the data (and alternative data, such as the analysis of night lights), suggest that the economic reality is somewhat different from the image projected by Moscow.
The minister concluded that, although the exact state of the Russian economy cannot be known with certainty, what is clear is that “the official version promoted by the Kremlin is not true.”
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