Russia's economy faces alarming stagflation amid sanctions and Ukraine war
Russia's economy enters dangerous stagflation as crisis deepens – reports. The Russian economy is displaying worrying signs of stagnation and stagflation amid the collapse of the ruble and high key interest rates. Entering one of the most perilous phases, Russia faces a mix of economic stagnation and rising inflation, known as stagflation.
This crisis, feared by economists worldwide, is a direct result of sanction pressures and the costly war with Ukraine. Data presented at the XIX International Conference "Russian Regions in the Focus of Change" highlight persistent stagnation tendencies within Russia's economy.
For the third consecutive month, economic activity shows a decline. The Center for Macroeconomic Analysis and Short-Term Forecasting (CMASTF) notes that the number of growing sectors is shrinking while those declining increase.
The civilian industrial sector is experiencing near-zero or even negative growth, with only the defense industry and some recovery in oil product manufacturing showing signs of life.
However, even these areas of demand cannot offset the widespread downturn. Critical aggravating factors include: a sharp shortage of skilled labor; tightened monetary policy; and exhausted fiscal stimulus options. Stagflation is notably resistant to standard economic remedies.
Combating inflation through rate hikes and spending cuts further stifles growth, while stimulus measures to encourage growth feed inflation, creating a difficult cycle to break.
Economists warn that should stagflation continue unchecked, it risks becoming "chronic," making alleviation nearly impossible without significant reforms and highly skilled management.
But incompetence in governance and political decisions based on voluntarism are cited as root causes of the current crisis.
With sanctions limiting Russia's access to Western technology, markets, and investments, and a draining conflict with Ukraine consuming resources, the Russian economy is being pushed to its limits. The deepening of this stagflation crisis could signify the onset of a systemic degradation of the country's entire economic model.