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Russia's war-fueled economy is running on empty, Central Bank chief warns

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Russia's war-fueled economy is running on empty, Central Bank chief warns
Chairman of the Central Bank of Russia Elvira Nabiullina speaks during the session as a part of the St. Petersburg International Economic Forum (SPIEF) in St. Petersburg, Russia on June 6, 2024. (Sefa Karacan/Anadolu via Getty Images)

Editor's note: This story was updated to include Russian President Vladimir Putin's remarks at the St. Petersburg International Economic Forum.

Russia's wartime economic momentum is fading fast, with key resources nearly exhausted, Russian Central Bank Governor Elvira Nabiullina said, warning that the country can no longer rely on the same tools that sustained growth in the first two years of the full-scale war against Ukraine, the Moscow Times reported on June 19.

Speaking at the St. Petersburg International Economic Forum, Nabiullina said that the Russian economy had been expanding on the back of "free resources," including labor, industrial capacity, bank capital reserves, and liquid assets from the National Wealth Fund (NWF) — all of which are now reportedly nearing depletion.

"We grew for two years at a fairly high pace because free resources were activated," she said. "We need to understand that many of those resources have truly been exhausted."

Speaking at the same forum, Russian President Vladimir Putin ordered officials "not to allow stagnation or recession" in the Russian economy under any circumstances.

"We must consistently change the structure of our economy," he said.

The comments come after Russia's ambassador to the U.K., Andrei Kelin, claimed in an interview with CNN this week that Russia is spending "only 5–7%" of its federal budget on the war. Kelin claimed that Russia can continue waging its war, saying Moscow "is winning."

According to the state statistics agency Rosstat, Russia's unemployment rate has dropped to a historic low of 2.3%. At the same time, mass emigration and large-scale wartime recruitment have created a labor shortage estimated at 2 million people. Industrial capacity utilization has surged beyond 80%, the highest in modern Russian history.

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Russia's economy is now "on the verge of a transition to recession," Russian Economy Minister Maxim Reshetnikov said at the same forum. Official data show that GDP growth slowed from 4.1% in late 2023 to just 1.4% in the first quarter of 2024, with the economy contracting quarter-on-quarter for the first time since 2022.

Business profits in March fell by one-third overall and dropped by half in the critical oil and gas sector. Industrial growth stagnated at 1.2% year-over-year between January and April, while civilian sectors of the economy began shrinking. Retail turnover growth slowed from 7.2% in December to just 2.4% in April.

An anonymous Russian analyst told Novaya Gazeta Europe that government technocrats are effectively telling Putin it's time to choose between "war or economy."

During its invasion of Ukraine, Russia has faced rising inflation due to record military spending, pushing the central bank to maintain high interest rates. Under government pressure, the bank cut the rate slightly from 21% to 20% earlier in June, despite concerns about weakened private investment.

Officials have scaled back key development projects and reduced shipments of metals and oil products. Early hopes for recovery in 2025, driven by talks with the U.S., have faded as inflation and sanctions weigh heavily on growth.

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Anna Fratsyvir

News Editor

Anna Fratsyvir is a news editor at the Kyiv Independent, with a background in broadcast journalism and international affairs. Previously, she worked as a TV journalist at Ukraine’s public broadcaster Suspilne, covering global politics and international developments. Anna holds a Bachelor's degree in International Communications from Taras Shevchenko National University and is currently an MA candidate in International Relations at the Johns Hopkins School of Advanced International Studies (SAIS).

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