Russia’s economic growth slowed in the second quarter of 2024, with GDP dipping to 4% from April to June. Inflation continued to rise, reaching 9.13% year-on-year in July, the highest since February 2023.
The Kremlin’s heavy militarization of the economy, fueled by the conflict in Ukraine, has led to economic expansion but also soaring inflation. The Central Bank raised interest rates to 18% in an effort to combat the “overheating” economy.
Russia is set to spend almost nine percent of its GDP on defense and security this year, with the federal budget increasing significantly since the Ukraine offensive. Analysts are concerned that interest rate hikes may not effectively address inflation due to state-directed spending.
In a country where many lack savings and have experienced economic instability, consumer prices remain a sensitive issue. The Central Bank warned of the economy’s unsustainable growth and difficulties with international payments due to Western sanctions.