Russia's economy is headed for stagnation as the path of monetary policy is being chosen 'very poorly,' economists say

  • Russia's economy is stumbling and could be headed for stagnation, economists said.

  • That's because policymakers have timed interest rate hikes "very poorly," a new report says.

  • Russian inflation could hit 5.6% this month, the nation's own economists forecasted.

Russia's economy is ailing as policymakers' attempts to cool down inflation and prop up the ruble are being timed "extremely poorly," the Russian Center for Macroeconomic Analysis and Short-Term Forecasting said in a report.

The center's economists pointed to Russia's recent interest rate hikes, with rates now hovering around 13% to help lower high prices and boost Russia's sagging currency. Higher rates can help achieve those goals by tightening financial conditions, but that spells bad news for the rest of Russia's economy, which is already struggling.

"High frequency data on economic dynamics show that in recent months, economic activity has begun to stagnate, with a tendency toward a slight decline (and stagnation or decline is observed in both household consumption and investment.)," economists said in a September review of Russia's economy.

Russia's economic situation ran into trouble not long after it began its "special military operation" in Ukraine early last year. Though the nation has reported slight growth in 2023, real wage growth has slowed to near-zero, the review said, while consumer spending dipped below zero this July.

"It is worth noting that the moment for the 'cooling down' actions of the monetary authorities (raising the key rate, the likely sequestration of the budget expenditures and new possible rate increases) was chosen extremely poorly," the report said, later adding that Russia's economy was likely headed for a period of "protracted stagnation."

Meanwhile, inflation will likely ease slightly over the coming months. Prices could fall to just 5.6% in September, the center's economists forecasted, still around 1.5 times Russia's 4% targeted inflation rate.

But while economists have been ringing the alarm on the Russian economy, Putin has put up a show a defiance, stating last week that Russia didn't have any problems that were "absolutely insurmountable." Western scholars and researchers, meanwhile, say that under-the-radar statistics of Russia's economy show a far weaker picture of Moscow's finances than Putin has let on.

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