Trump's Tariff Wars Collapse Russia's Economic Growth - The Economist.

The economy of Russia is turning. Relevant data confirms the Goldman Sachs index, the Russian development bank VEB, and the Sberbank business activity indicator, reports The Economist.

The Central Bank of Russia also acknowledges the problem and reported a decline in production due to a sharp drop in demand in various sectors.

The economic slowdown occurred after positive changes when the Russian executive power joined in implementing sanctions and the war. However, after the invasion of Ukraine in 2022, the GDP decline was only 1.4%, and in 2023-2024, the economy grew by 4.1% and 4.3% respectively. During this Time, consumer confidence reached record highs.

Analysts identify three main factors that led to the economic slowdown.

First, the completion of structural changes in the Russian economy. The country spent significant resources on building military factories, creating logistics networks for trade with China and India, as well as import substitution. Real investments in fixed capital increased by 23%. According to the Central Bank's estimate, this transformation is already completed.

Second, high inflation and strict actions of the central bank, which keeps the key rate at 21%. Inflation exceeds the target level of 4%, and its causes are increased military spending, mobilization, and the loss of qualified personnel. Nominal wages increased by 18%, and businesses raised prices, leading to a decrease in consumption and investments.

Third, the exacerbation of external economic conditions. The trade war with the USA has led to a decrease in global growth forecasts and oil prices.

Russia's military spending has also stabilized and will only grow by 3.4% in real terms - compared to a 53% increase last year. This also weakens incentives for economic growth.

The Kremlin is particularly concerned about the state of the Chinese market, which is the largest buyer of Russian oil. The IMF has lowered its GDP growth forecast for China from 4.6% to 4%.