📉 Russia's war-fighting capacity unaffected by looming recession
Hello and welcome to your essential guide to Russian politics and economics—written by Margarita Liutova and Farida Rustamova. As Russia tests NATO’s eastern flank with drone incursions, we look at:
The state of Russia’s economy and its finances as experts argue over whether the economy is in recession, or “just” stagnating;
Why Putin picked young security official Igor Krasnov as chief justice of Russia’s Supreme Court;
The public spat that suggests deceased opposition leader Alexei Navalny’s Anti-Corruption Fund (FBK) is in crisis;
A huge religious procession through Moscow organized by the Orthodox in conjunction with far-right groups.
Also, have a look at our new section at the end of the newsletter where we recommend some extra reading!
⏳ This newsletter contains 2038 words – it will take about 10 minutes to read.
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Stagnation or recession? Either way, the boom in the Russian economy is over
All observers agree that the economic boom of 2023–2024 has now fizzled out, and will not return any time soon.
Officials and economists have not yet reached a consensus view on whether the Russian economy has entered a recession or is “just” stagnating. In part, this is because the correct terminology depends on GDP growth figures, and with different methodologies, you get slightly different results. German Gref, the head of state-owned Sberbank, described the economy as in “technical stagnation” at an economic forum last week in Vladivostok. The term generated widespread discussion—and some mockery—because it appeared to have been chosen by Gref (or his aides) to avoid saying “recession.”
Either way, the “recession versus stagnation” debate does not have a lot of significance: all observers agree that the economic boom of 2023–2024 has now fizzled out, and will not return any time soon.
Russia’s Central Bank reduced interest rates on Friday by 1 percentage point to 17 percent—the latest in a series of cuts. The Central Bank explained its decision as a response to falling prices: and it’s true that consumer prices fell 0.4% last month (one of the best monthly results for over two decades). The main reasons were a seasonal decline in vegetable and fruit prices, which dropped earlier than usual due to a successful harvest, and a strong ruble, which curbs price increases for imported goods. However, these are one-off factors. And they are not the only reasons, perhaps not the most important: inflation is slowing because the Russian economy is in the grip of a slowdown.
The problems have been particularly noticeable in Russian industry, where the only remaining growth points are in sectors tied to defense. The civilian industrial sector has been in recession since early this year, with the contraction accelerating in July (August data is not yet available). On the one hand, this is a result of Russia’s tight monetary policy, which has limited lending and cooled demand. On the other hand, it stems from issues like labor shortages, and difficulties sourcing technology. Some of these issues have been caused by Western sanctions, but sanctions mostly tend to exacerbate long-standing structural problems in the Russian economy.
Russia’s consumer boom is also in its final stages. Unsecured consumer lending is falling, which reduces demand for durable goods (that people prefer to buy on credit). Car sales have collapsed, and surveys show steadily worsening consumer sentiment. Although wage growth continues, businesses have been warning for months that it cannot continue for much longer.
Russia is also grappling with its state finances. Although revenue slightly exceeded spending in August, the Ministry of Finance said Wednesday that the deficit for the first eight months of this year still exceeds the deficit planned for the entirety of 2025—about 4 trillion rubles ($47 billion). Managing this shortfall is a challenge for the Ministry of Finance, albeit not yet a critical one, and Finance Minister Anton Siluanov has already secured Putin’s public support for more borrowing. Currently, Russian debt is just over 16 percent of GDP, meaning the Ministry of Finance has room to increase borrowing without damaging the economy. Siluanov has acknowledged it will be difficult to find government bond investors as the pool of buyers is currently small. However, most bonds are bought by Russia’s largest state-owned banks, which are always ready to lend more if they are asked (especially if the Central Bank gives them liquidity, or turns a blind eye to problematic corporate loan portfolios).
For the moment, Russia’s economic slowdown is not proving too painful for the Kremlin (falling inflation even allows officials to claim an economic victory). Of course, the situation would change if there was a full-blown recession that would, inevitably, bring long-standing economic problems to the fore, and create painful new pressure points. But this does not seem imminent. As a result, there is no sign of the emergence of any significant economic constraints on the Kremlin’s ability to wage war in Ukraine.
Security official to head Russia’s Supreme Court
In a post-Soviet first, the chief justice of Russia’s Supreme Court will be a criminal investigator who has never worked as a judge.
Russian President Vladimir Putin passed over several close allies when he decided to put forward Prosecutor General Igor Krasnov, aged just 49, to be the next chief justice of Russia’s Supreme Court at the end of August. Krasnov looks set to be formally appointed to the position later this month.
The role of chief justice is an important one for Russia’s elite—especially for the group of St. Petersburg lawyers who are part of Putin’s inner circle. For many years, ex-president Dmitry Medvedev (one of those St. Petersburg lawyers) was rumored to be a leading candidate. However, Medvedev was one of those passed over when the position became vacant earlier this year following the death of the previous incumbent, Irina Podnosova (an ex-classmate of the Russian president). The other was senior security Alexander Bastrykin, the veteran head of the powerful Investigative Committee.
While we can only guess at Putin’s motives for choosing Krasnov, it’s possible that his elevation is part of a trend in which a younger generation of officials is brought to the fore. Putin himself turns 73 next month, and many of his close allies in top jobs are the same age, or even older.
Over the course of his career, Krasnov has handled many high-profile criminal cases (sometimes reporting directly to Putin), and has proven himself to be politically astute. For instance, he was in charge of the investigation into the 2015 murder of opposition leader Boris Nemtsov. While Krasnov identified the perpetrators, who were put on trial and sentenced to long jail terms, he made no attempt to identify the masterminds of the assasination. Krasnov became one of Russia’s most important security officials when he was made Prosecutor General in 2020. Under his leadership, the Prosecutor General’s Office has been particularly active in enforcing political repression, and known for overseeing the largest property redistribution in Russia since the 1990s, which accelerated dramatically after the full-scale invasion of Ukraine.
“He’s proven himself and is ready for anything. That’s the most important thing,” a former senior official said of Krasnov.
Before Krasnov was put forward, there had been a lot of media speculation that Bastrykin, 72, would be given the Supreme Court role. It’s unclear why the Kremlin decided not to appoint him, but it’s possible that age was a key consideration.
Krasnov’s predecessor, Podnosova, was chief justice for little more than a year before her death. Before Podnosova, the post was occupied by Vyacheslav Lebedev, the first head of the Supreme Court chairman in post-Soviet Russia who led the Court for 33 years until his death aged 80 in 2024. While Supreme Court chief justices are formally appointed for six-year terms, in practice the position is usually for life.
What can be expected from Krasnov? It’s many years since courts enjoyed any independence in Russia, and ex-prosecutor Krasnov will loyally implement the will of the Kremlin. It’s possible that he will pursue political repression and nationalization with renewed zeal, and as chief justice he will have ample scope to do this: unlike the Prosecutor General’s Office, the Supreme Court can put forward legislation.
Navalny ally resignation exposes crisis in Russia’s emigre opposition
Never before has such a senior figure in Navalny’s Anti-Corruption Fund talked so publicly about the organization’s internal divisions.
The resignation earlier this month of Ivan Zhdanov, the director of deceased opposition leader Alexei Navalny’s Anti-Corruption Fund (FBK), has exposed the extent of the disagreements over Navalny’s legacy among his closest associates. In a subsequent interview, Zhdanov, who was appointed to FBK in 2014, claimed he was sacked by fellow Navalny allies Leonid Volkov and Maria Pevchikh. He said he was asked to leave because he had developed “political and stylistic disagreements” with his colleagues. In response, Pevchikh said she did not fire Zhdanov. Neither Volkov nor Navalny’s widow, Yulia Navalnaya, have commented on the dismissal. While FBK has experienced several internal conflicts in recent years, this is the first time a senior figure has aired the group’s problems in public.
“Without Alexei, it’s completely different,” Zhdanov posted on social media. And it’s true that Navalny's death in an Arctic prison last year has left his associates disoriented and uncertain about what to do next. Unable to operate inside Russia, they have been reduced to making YouTube broadcasts, lobbying for sanctions, and organizing occasional demonstrations.
Zhdanov’s replacement was announced as the former head of the organization’s IT department, Vladislav Romantsov. A baffling appointment for many, Romantsov, 30, presided over several major leaks of FBK supporters’ personal data, which led to dozens of criminal cases in Russia. But the choice may indicate a shortage of personnel within FBK. Volkov said that they picked Romantsov because “a generational change is needed.”
Orthodox march showcases growing influence of far-right
The exceptionally large religious event was organized by the Orthodox Church and far-right groups, and had the go-ahead from the Kremlin.
A religious procession of tens of thousands of people in Moscow on Sunday led by the head of the Russian Orthodox Church, and attended by members of the elite, was a demonstration of the Kremlin’s tolerance of far-right groups that it once strove to keep at arm’s length.
Formally, the event was an Orthodox ritual involving a march with people singing hymns, and carrying crosses, icons, and banners. Such processions are held regularly on religious holidays (the largest at Easter), and they are typically relatively niche events. However, this time was different. According to officials, 40,000 people took part. Organizers claimed attendance of 100,000.
In addition to the size of this event, the fact that it took place on the streets made it unusual (the authorities still refuse to allow most large gatherings because of COVID-19 restrictions). Indeed, it had much in common with pro-government rallies: people were mobilized via church networks, and bused in from outside of Moscow. Religious expert Ksenia Luchenko described the procession as a “collaboration” between the Russian Orthodox Church and far-right group Russian Community, which is known to be close to the security forces and has previously organized attacks on immigrants. Notable nationalists present included Orthodox banker Konstantin Malofeev; the deputy speaker of the State Duma, Anna Kuznetsova; and Minister of Industry and Trade Anton Alikhanov.
The event was organized with the approval of the Kremlin, according to a source in the Moscow government. In other words, this was a political event under the auspices of the Russian Orthodox Church designed to show the influence of pro-government ultra-right activists. The Kremlin’s traditional wariness of extreme nationalists has lessened since the full-scale invasion of Ukraine—and Sunday’s procession was a landmark moment in this process.
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What we’re reading
Following Putin’s recent visit to Beijing, we’ve selected some Substack posts that shed light on China-Russia, and India-Russia relations.
Energy expert Sergey Vakulenko explains why geopolitics is not the only reason for price fluctuations of the oil that India buys from Russia;
The Atlantic Council’s Joe Webster justifies his skepticism about the prospects of the Power of Siberia-2 pipeline that’s supposed to deliver Russian gas to China;
China expert Joseph Torigian examines how Beijing is weaponizing the memory of the Second World War—just like Moscow.
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