Despite the economic challenges facing Russia due to Western sanctions, high inflation and standard interest rates, US President Donald Trump has given Moscow a new opportunity to enhance its economy, according to a Reuters report.
Reuters says that in light of the continuation of the war in Ukraine 3 years ago, Russia is facing a complex economic situation, as unimportant military spending led to an incompatible inflation, and interest rates rose to 21%, which led to slowing investments and reducing the purchasing power of citizens.
According to Oleg Fogin, the former deputy head of the Russian Central Bank, Moscow has two options that have no third: either to reduce military spending, or continue with it with years of slowdown in economic growth, high inflation, and the deterioration of living standards, which increases political risks to the government .
“The main economic cause that may push Russia to negotiate the end of the war diplomat is to avoid more waste of limited resources on unproductive expenses”, stressing that this is “the only option to avoid inflationary recession.”
Possible gains from ending the war
While it is unlikely that Russia will reduce defense expenses quickly, as it constitutes about a third of the total budget, the mere possibility of reaching a diplomatic agreement may reduce economic pressures, lead to the reduction of sanctions, and may even encourage the return of Western companies.
Alexander Coleander, a researcher at the European Policy Center, believes that “the Kremlin will not stop spending on arms suddenly for fear of economic recession, and the army needs to be rebuilt its capabilities.”
But he pointed out that any gradual reduction in the number of soldiers can reduce pressure on the labor market, which is already suffering from a lack of employment due to wide recruitment and migration, which led to a decrease in the unemployment rate to a record level at 2.3%.
Colanand adds that the possibility of progress in negotiations may make Washington less stressful in imposing secondary sanctions on companies dealing with Russia, especially those coming from China, which facilitates import and reduces costs.
Market reactions and bank response
The Russian markets witnessed a remarkable improvement immediately after the circulation of Trump’s efforts to end the war, as the price of the ruble increased to its highest level in 6 months against the dollar, supported by the hopes of reducing sanctions.
Despite the strong growth of the Russian economy after the slight contraction it witnessed in 2022, the Russian Central Bank expects growth slowing from 4.1% in 2024 to about 2% in 2025. Ealvira Nabiolina, the central bank province, stated on February 14 that “” ” The growth of demand has always been faster than productive ability, which explains the natural slowdown in growth. “
But the central bank balance between supporting the economy and controlling inflation remains a challenge, as the Russian financial deficit inflated to 1.7 trillion rubles (19.21 billion dollars) during January alone, an increase of 14 times compared to the previous year, and the government provided expected spending for 2025 in advance .
Between gains and risks
The huge military spending led to the rise in wages in the defense -related sectors, while citizens in the civil sectors suffer from a sharp rise in basic commodity prices.
Some companies have benefited from the large transformations in trade patterns, as they witnessed a steady increase in revenues, taking advantage of the high consumer demand and low competition after the withdrawal of many foreign companies.
However, the high interest rates hinder other companies, as Elina Bundarshuk, the Orangere Foundation for the Development of Ware Banks.
The basic economic risks facing Russia, according to internal reports seen by Reuters, include low oil prices, budget restrictions, and the increase in non -companies. Although Trump uses the end of the war as a way to motivate the Russian economy, it indicated that additional sanctions are imposed if a rapid agreement is not reached.
Washington’s position
“The United States has significant economic influence, and this is what makes the Russians ready to sit at the negotiating table,” says Chris Weaver, CEO of Macro Advisori.
While Moscow is trying to achieve the largest possible economic gains from any possible diplomatic agreement, Washington is closely monitoring, as the main question remains: Will Trump allow Moscow to benefit economically from the peace agreement, or will it retreat and tighten the sanctions again?
