Revised:
Documents prepared for an internal government discussion identify lower oil prices, budget limitations, and an increase in bad corporate debt as major economic risks facing Russia. There is notable concern about a potential rise in U.S. and OPEC oil output.
Despite public statements by President Vladimir Putin and senior officials portraying the Russian economy's resilience to international sanctions, they acknowledge inflation, currently at 10%, as a significant challenge.
Reports from the economy ministry and central bank, reviewed by Reuters ahead of a session with Prime Minister Mikhail Mishustin on February 4, express broader concerns predating the recent announcement by U.S. President Donald Trump regarding Ukraine.
The economy ministry report stated an increasing risk of an economic slowdown leading to a technical recession before inflation eases, highlighting that high interest rates, expected to remain at 21%, are hindering lending and investment, jeopardizing growth.
Both the economy ministry and central bank underscore the threat posed by lower oil prices to the federal budget. The central bank's report emphasizes the risk of a potential surplus in oil supply due to increased U.S. production, along with the current high free capacity of OPEC countries relative to Russian crude exports.
Regarding future budget constraints, the central bank warns of potential challenges over the next 5-10 years. The reports emphasize concerns about rising costs for companies, which Deputy Prime Minister Alexander Novak publicly raised in parliament.
Due to adverse external circumstances and declining domestic demand, businesses may struggle to pass on cost increases to consumers, impacting profits and financial stability, potentially leading to a buildup of bad debts.
With labor shortages, currency devaluation, and high interest rates impeding growth, Russia's economic outlook has been strained. Private concerns have been raised about distortions in the wartime economy, with Washington viewing oil prices as a leverage point in negotiations over Ukraine.
Higher oil prices are crucial for Russia's budget revenue, accounting for approximately one-third of its income. The management of fiscal deficits, driven by increased spending, is currently heavily reliant on the National Wealth Fund (NWF), whose liquid assets have significantly decreased since the conflict began.