Pride Comes Before the Fall
Nicholas Trickett’s economic summary of the week (July 27 — 31)
The Kremlin's hesitation in making decisive policy decisions has led to a precarious economic situation in Russia. With the elections approaching on September 18-20, the potential for political backlash is high, but the economic repercussions of delaying change are becoming increasingly difficult to manage. The Russian Union of Industrialists and Entrepreneurs (RUIE) reported a record low business-climate index of 42.4 in July, indicating worsening market conditions.
This comes amid a fuel crisis and strikes at logistics centers, which will likely impact August data. The Bank of Russia's recent 0.25 percentage point cut in the key interest rate to 14 percent has had limited impact. Real wage growth has slowed, and businesses plan to cut spending on labor. Russians are increasingly saving extra cash, despite consumer sentiment worsening.
The economy is now approaching a point where state spending can no longer prevent an accelerating contraction. Policy changes, such as higher consumption taxes, create a feedback loop with inflation and disproportionately harm the majority of Russians whose incomes have not risen in real terms since 2022. The economy is experiencing its worst contraction in investment since 2009, with investment in defense firms and state enterprises keeping aggregates afloat.
If the state refrains from intervention, either through de-escalation or mobilization, the situation will only worsen. The longer the indecision persists, the greater the pain when the adjustment inevitably occurs.
Written by urgent.news from Riddle Russia's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
