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Reading: Stagflation Ahead: How Russia’s War Economy Is Hurtling Toward a Fall 2025 Reckoning
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Geopolist | Istanbul Center for Geopolitics > Blog > Commentary > Stagflation Ahead: How Russia’s War Economy Is Hurtling Toward a Fall 2025 Reckoning
CommentaryEconomyGeopolitics

Stagflation Ahead: How Russia’s War Economy Is Hurtling Toward a Fall 2025 Reckoning

Last updated: January 19, 2025 7:44 pm
By GEOPOLIST | Istanbul Center for Geopolitics Published January 19, 2025 368 Views 2 Min Read
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Summary by Geopolist | Istanbul Center for Geopolitics:

In this analysis, the author argues that Russia’s economy is on the brink of stagflation—high inflation with negligible growth—driven largely by President Vladimir Putin’s protracted war effort in Ukraine. Despite official assurances of resilience, multiple indicators point to looming trouble. Russia’s labor market is stretched thin because of military mobilization and widespread emigration, and the country’s inflation problem appears more severe than official numbers suggest, with evidence that the real costs of basic goods are rising rapidly.

Government policies have exacerbated these pressures. Putin overrode the Central Bank’s anticipated December interest-rate hike, bowing to leading industrialists who fear bankruptcies if borrowing costs remain high. Yet easy credit has already fueled massive off-budget lending to war-related firms, pushing corporate debt and inflation higher. Access to foreign financing remains frozen by Western sanctions, forcing the Kremlin to raise taxes and rely on a diminishing stockpile in the National Wealth Fund. As these reserves run low—projected to happen by late 2025—Russia will confront difficult spending cuts and the possibility of price controls or rationing.

At the same time, foreign energy revenues have declined, while advanced technology sanctions have critically undermined Russia’s manufacturing and defense sectors. The ruble’s depreciation underscores the lack of external financing. Altogether, the piece concludes that mounting economic problems—from depleted reserves and high inflation to labor and technology shortages—risk constraining Russia’s ability to continue funding its war efforts at current levels.

Read more here.

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