Russia could slip into a recession soon and is having its worst harvest in 17 years, further straining an economy that\u2019s already seen energy revenue plunge.<\/p>\n
For now, Vladimir Putin has staved off additional U.S. sanctions, as he bought more time to prosecute his war on Ukraine by meeting with President Donald Trump in Alaska last week, sparking a flurry of diplomatic activity as European allies try to forge security guarantees for Kyiv. <\/p>\n
But time may not be Russia\u2019s ally.<\/p>\n
While Trump didn\u2019t follow through on his threats to penalize Moscow for failing to reach a ceasefire agreement, there\u2019s also been no sign of talks to remove existing sanctions and revive economic cooperation. <\/p>\n
\u201cSo it\u2019s too early to adopt a more optimistic view on the Russian economy, which we think is teetering on the brink of a recession,\u201d Tatiana Orlova, lead economist for emerging markets at Oxford Economics, said in a note on Monday.<\/p>\n
Since the Alaska meeting produced nothing that would move the needle, she reaffirmed her forecast for Russian GDP growth to slow sharply this year to just 1.2% from 4.3% in 2024.<\/p>\n
And after that, the economy will stagnate even further, coming to a near standstill with growth dropping below 1% in 2026 and 2027.<\/p>\n
\u201cWe also think there\u2019s a significant probability of Russia\u2019s economy slipping into a technical recession in the coming quarters,\u201d Orlova added.<\/p>\n
Similar alarms have been piling up this year. In June, Economy Minister Maxim Reshetnikov warned that Russia was\u00a0\u201con the brink\u201d\u00a0of a recession<\/a>. Russian banks have also raised red flags on a potential debt crisis<\/a> as high interest rates weigh on borrowers\u2019 ability to service loans. <\/p>\n Last month, the central bank slashed interest rates by 200 basis points to revive stalling growth, after hiking them to sky-high levels to fight inflation that\u2019s been stoked by Russia\u2019s war on Ukraine.<\/p>\n Harvest season and Russia\u2019s economy<\/p>\n Meanwhile, Russia is having a disastrous harvest despite being an agricultural powerhouse, putting further pressure on the economy and the Kremlin\u2019s finances.<\/p>\n The country\u2019s grain and fertilizer exports haven\u2019t been sanctioned due to concerns about food shortages and have been a source of economic strength for Russia.<\/p>\n But July saw the\u00a0lowest\u00a0grain exports for that month since 2008, according to Peter Frankopan, associate fellow on Russia and Eurasia at International Institute for Strategic Studies, who attributed it to intensifying climate volatility.<\/p>\n This year, crops have been damaged by unseasonable frost in the spring as well as record heat and drought conditions in the summer, he explained in a recent post<\/a>. Total grain production is now expected to fall to 130 million metric tons, down 18% from a 2022 peak.<\/p>\n \u201cRussia\u2019s bad 2025 harvest is more than a weather event: it reveals the structural fragility of Russia\u2019s war economy and the growing risks to a system built on fiscal buffers and fossil fuels,\u201d Frankopan wrote.<\/p>\n In fact, Russia\u2019s fiscal buffer is disappearing<\/a> as cash from energy dwindles. The Kremlin\u2019s oil and gas revenue, which is its main source of funds, tumbled 27% in July from a year ago to 787.3 billion rubles, or about $9.8 billion.\u00a0<\/p>\n As war spending soars, the result has been widening budget deficits. Russia has had to tap reserves in its National Wealth Fund, which has shrunk\u00a0from $135 billion in January 2022 to just $35 billion this past May.<\/p>\n \u201cRussia\u2019s economy is fast approaching a fiscal crunch that will encumber its war effort,\u201d economist and Russia expert Anders \u00c5slund wrote in a\u00a0Project Syndicate\u00a0op-ed<\/a>\u00a0earlier this month. \u201cThough that may not be enough to compel Putin to seek peace, it does suggest that the walls are closing in on him.\u201d\n<\/p>\n