Source: AFP
The pace of Russia’s economic growth slowed in the second quarter of 2024, official data showed on Friday, amid concerns about persistent inflation and warnings of “overheating”.
Gross domestic product (GDP) fell from 5.4 percent in the first quarter to 4 percent from April to June, the lowest quarterly result since the start of 2023, but still a sign that the economy is growing.
Inflation, meanwhile, showed no sign of easing, with consumer prices rising 9.13% year-on-year in July — up from 8.59% in June and the highest rate since February 2023, data from the statistics office showed. Rosstat service.
The Kremlin has heavily militarized the Russian economy since sending troops into Ukraine in February 2022, spending huge sums on arms production and military salaries.
That spending spree has fueled economic growth, helping the Kremlin discard initial forecasts of a recession when it was hit with unprecedented Western sanctions in 2022.
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But it has fueled inflation at home, forcing the central bank to raise borrowing costs.
‘Overheat’
The central bank raised interest rates aggressively in a bid to ease what it warned was an economy growing at unsustainable rates due to a massive increase in government spending on the attack on Ukraine.
Source: AFP
The bank raised its key rate to 18% last month — the highest level since an emergency hike in February 2022 took it to 20%.
Bank Governor Elvira Nabiullina said the economy was showing signs of “overheating” and pointed to difficulties with international payments — a result of Western sanctions — as another factor driving up inflation.
Russia is set to spend nearly nine percent of its GDP on defense and security this year, a rate unprecedented since Soviet times, according to President Vladimir Putin.
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Meanwhile, Moscow’s federal budget has jumped nearly 50 percent over the past three years — from 24.8 trillion rubles in 2021, before the Ukraine attack, to a planned 36.6 trillion rubles ($427 billion) this year.
With so much spending directed by the government, which is less responsive to higher borrowing costs, analysts fear that interest rate hikes may not be an effective tool against inflation.
Consumer prices are a sensitive issue in Russia, where many people have virtually no savings and memories of hyperinflation and economic instability run deep.
Source: AFP
