Running out of road

The Russian economy is not collapsing, but it is stagnant and suffering high inflation. And this economic decline could be a tipping point, because Russia may run out of liquid reserves, prompting the Kremlin to cut public expenditure.

For months, Russia’s official inflation rate has hovered around 10%. In June, the Central Bank of Russia boasted that the rate had fallen to 9.4%; but it then dampened the celebration by reporting that expectations for inflation one year from now are 13% (which may well be the actual inflation rate today). Yet, on July 25, the central bank dared to cut its very high interest rate, which has weakened growth and caused a severe credit crunch, from 20% to 18%.

True, Russia’s economy appeared surprisingly dynamic in 2023 and 2024, with the official growth rate reaching 4