📉 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.

---

We are always delighted if you want to share our reporting! If someone has forwarded this email, you can subscribe here.

---

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.