Russia’s economic growth slowed in Q2 amid ‘overheating’ concerns

Russia’s economic growth has been driven by the Kremlin’s huge spending on its military campaign in Ukraine, which it launched in February 2022.

While that spending helped quell earlier predictions of an impending recession linked to Western sanctions, it led to rampant inflation.

Inflation reached 9.13 percent year-on-year in July, the AFP report said, citing data from statistics agency Rosstat.

The country also went through a consumption boom driven by the state’s heavy defense spending and labor shortages.

“Consumer activity remains high amid significant growth in household incomes and positive consumer sentiment,” Russia’s central bank said in July.

“Labour shortages continue to grow. Under these conditions, the increase in domestic demand does not result in a proportionate expansion of the supply of goods and services, but rather increases the costs of doing business and consequently intensifies inflationary pressures,” he added.

Russia’s central bank raised its key interest rate to 18 percent last month after inflation “accelerated” and was “developing significantly above the Bank of Russia’s April forecast,” it said.

Russia’s economy is also facing a severe demographic crisis, with the nation’s population set to decline by 50 percent by the end of the century, according to an Atlantic Council report written by Harley Balzer, professor emeritus at Georgetown University.

The report highlights Russia’s long-term population decline, which it says has now been exacerbated by the ongoing war in Ukraine.

This decline could increase pressure on Russia’s labor shortage and lead to lower growth and productivity.

“Unless Russia’s leaders can develop and finance a more effective set of policies, the only solutions to population decline will be a combination of incorporation of non-Russian territory and/or immigration from Asia and Africa,” Balzer wrote in the report.