ECONOMY
Economic Concerns Aired at
St. Petersburg Economic Forum
St. Petersburg Economic Forum
July 3, 2025
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Vladislav Inozemtsev
Сofounder and expert at the Center for Analysis and Strategies in Europe (CASE) in Nicosia, Cyprus
Economist Vladislav Inozemtsev points out that the technocrats who helped stabilize the Russian economy in 2022 are now concerned about the Kremlin’s plans. This uncertainty is straining the entire economy.
The original text in Russian was published in the Moscow Times. We are republishing it here with small changes and with the author’s permission.
This year’s St Petersburg International Economic Forum (SPIEF), held last month, deserves to be in the spotlight.
Many comments made at SPIEF were alarming. For example, Economic Development Minister Maxim Reshetnikov said “according to the figures, there is a cooling, but… according to the current feelings of businesses and business indicators, we are already, it seems to me, on the verge of going into recession.” Sberbank head German Gref, in his remarks, said serious investment had virtually dried up in the country.
This year’s St Petersburg International Economic Forum (SPIEF), held last month, deserves to be in the spotlight.
Many comments made at SPIEF were alarming. For example, Economic Development Minister Maxim Reshetnikov said “according to the figures, there is a cooling, but… according to the current feelings of businesses and business indicators, we are already, it seems to me, on the verge of going into recession.” Sberbank head German Gref, in his remarks, said serious investment had virtually dried up in the country.
Duma Budget Committee Chair Andrei Makarov. Source: YouTube
Duma Budget Committee Chair Andrei Makarov noted that Russia’s investment climate is ranked 126 out of 133 in the world, lamenting that in the last 25 years the country had failed to create decent conditions for business and that it remains to be seen how that can be done.
“The needs of the working people will keep growing continuously, and the state may not have enough money for these ever-growing needs,” Makarov argued. “Socialism collapsed precisely because it failed to uphold its fundamental economic law, but we have not even yet written our own fundamental economic laws.”
Constant hikes in military spending undermining confidence
Signs of a slowdown in the economy were visible at least since the end of last year. Much has been made of the high Central Bank key rate, which has disincentivized investment. In addition, falling oil prices have frequently been in the headlines the past few months.
Forecasts have entailed the economy growing at most 1.0-1.5% this year, alongside a sharp slowdown in real income growth and a weaker ruble. This was all discussed as something normal, even desirable. What has changed in the last few weeks to cause such alarmism in the corridors of power?
In my view, the main reason is hardly that the economy has flashed some extremely negative trends – on their own they are unlikely to trigger a reaction like this.
“The needs of the working people will keep growing continuously, and the state may not have enough money for these ever-growing needs,” Makarov argued. “Socialism collapsed precisely because it failed to uphold its fundamental economic law, but we have not even yet written our own fundamental economic laws.”
Constant hikes in military spending undermining confidence
Signs of a slowdown in the economy were visible at least since the end of last year. Much has been made of the high Central Bank key rate, which has disincentivized investment. In addition, falling oil prices have frequently been in the headlines the past few months.
Forecasts have entailed the economy growing at most 1.0-1.5% this year, alongside a sharp slowdown in real income growth and a weaker ruble. This was all discussed as something normal, even desirable. What has changed in the last few weeks to cause such alarmism in the corridors of power?
In my view, the main reason is hardly that the economy has flashed some extremely negative trends – on their own they are unlikely to trigger a reaction like this.
“Rather the trigger for these serious economic discussions is forthcoming major political decisions, which Russia’s top economic managers deem to be dangerous.”
Over the course of the last few years, spending on the military has risen higher and higher. The problem is not even that it has now reached 7.0-7.5% of GDP (many countries have maintained a similar level of military spending for many years and during peacetime), but rather that over and over the government has proven unable to control the spiraling of these expenditures.
At end-2022, a budget was passed that envisaged RUB 4.98 trillion for defense in 2023 and then “just” RUB 4.64 trillion in 2024. But in the 2023 updated budget, RUB 10.80 trillion ended up being allocated for 2024, more than double the planned amount. (Meanwhile, a decrease to RUB 8.50 trillion was penciled in for 2025.)
Everything repeated itself in 2024: in the 2024 updated budget, RUB 13.50 trillion was budgeted for defense in 2025 and RUB 12.8 trillion in 2026 (note that the planned decrease is much smaller).
I have written before that the 2025 budget is quite dubious. For the first time, the Kremlin will spend more on the war than it plans to receive in oil and gas revenues (RUB 10.94 trillion). Moreover, 2025 oil and gas revenues, starting in April, have been revised considerably lower. For example, a few weeks ago the Duma approved changes to the budget that put oil and gas revenues at RUB 8.32 trillion this year.
At end-2022, a budget was passed that envisaged RUB 4.98 trillion for defense in 2023 and then “just” RUB 4.64 trillion in 2024. But in the 2023 updated budget, RUB 10.80 trillion ended up being allocated for 2024, more than double the planned amount. (Meanwhile, a decrease to RUB 8.50 trillion was penciled in for 2025.)
Everything repeated itself in 2024: in the 2024 updated budget, RUB 13.50 trillion was budgeted for defense in 2025 and RUB 12.8 trillion in 2026 (note that the planned decrease is much smaller).
I have written before that the 2025 budget is quite dubious. For the first time, the Kremlin will spend more on the war than it plans to receive in oil and gas revenues (RUB 10.94 trillion). Moreover, 2025 oil and gas revenues, starting in April, have been revised considerably lower. For example, a few weeks ago the Duma approved changes to the budget that put oil and gas revenues at RUB 8.32 trillion this year.
“Thus, if the latest numbers penciled in the budget come to pass, spending on the war will be 62.2% higher than all oil and gas receipts.”
The high key rate is not only depressing lending, significantly raising debt service costs on government-issued bonds, but also inflating the cost of state subsidies for debt extended to defense enterprises and mortgages. This year, more than a trillion rubles is to be spent on government mortgage programs, and Finance Minister Anton Siluanov has basically criticized the government for acting irresponsibly in the mortgage space. Overall, the fiscal situation looks challenging.
Siloviki vs technocrat clash brewing
Challenging – but not yet catastrophic. Tax receipts are growing, and non-oil and gas revenues are constantly on the rise. Starting in 2026, higher personal income tax rates will kick in, while inflation is pumping up VAT receipts, plus ruble weakening looks practically inevitable (this was mentioned at SPIEF by Gref, Severstal owner Alexei Mordashov and VTB chief Andrei Kostin, among others).
Catastrophic inflation would be the inevitable result if the Kremlin, for the fourth time, revised budgeted military spending in 2026 higher, say, to RUB 17-19 trillion.
Siloviki vs technocrat clash brewing
Challenging – but not yet catastrophic. Tax receipts are growing, and non-oil and gas revenues are constantly on the rise. Starting in 2026, higher personal income tax rates will kick in, while inflation is pumping up VAT receipts, plus ruble weakening looks practically inevitable (this was mentioned at SPIEF by Gref, Severstal owner Alexei Mordashov and VTB chief Andrei Kostin, among others).
Catastrophic inflation would be the inevitable result if the Kremlin, for the fourth time, revised budgeted military spending in 2026 higher, say, to RUB 17-19 trillion.
Belousov taking the salute at the 2025 Moscow Victory Day parade.
Source: Wiki Commons
Source: Wiki Commons
Could this happen? It seems this is the decision that the government’s economic bloc sees as imminent. Overconfident, Putin missed the chance to get a peace deal done on rather favorable terms and to gain Trump as an ally – judging by the latest statements of the US president, it seems he will put equal pressure on Kyiv and Moscow from now on to end the war in Ukraine.
It turns out that recently appointed Defense Minister Andrei Belousov, who, as I had expected, would try to make the war effort more economically efficient, lacks the influence to rein in the hawks. The latter have resumed lobbying the Kremlin to carry out another mobilization – “just” for another 1-2 million men – to achieve a “final decision of the Ukrainian question.”
Putin himself has suggested that this is not outside the realm of possibility – he said at SPIEF that “we see all of Ukraine as ours.”
It turns out that recently appointed Defense Minister Andrei Belousov, who, as I had expected, would try to make the war effort more economically efficient, lacks the influence to rein in the hawks. The latter have resumed lobbying the Kremlin to carry out another mobilization – “just” for another 1-2 million men – to achieve a “final decision of the Ukrainian question.”
Putin himself has suggested that this is not outside the realm of possibility – he said at SPIEF that “we see all of Ukraine as ours.”
“Things appear to be building up toward another Kremlin escalation, meaning higher military spending.”
More than a month ago, suspecting that the Russian leadership could be thinking like this, I wrote that toward autumn – that is, when the 2026 budget will be close to being wrapped up – an elite clash between the siloviki and the technocrats is inevitable (see Russia.Post here). Events now seem to be playing out even quicker. Though the technocrats (I would call them just reasonable people) are yet unwilling to break ranks openly, they have started issuing demarches.
One of them was a meeting of the entire economic bloc of the government, the Central Bank and tax service, chaired by the prime minister, where for the first time a fiscal five-year plan of sorts was discussed instead of the usual three-year budget. This looked to be an attempt to calculate the longer-term consequences of the Kremlin’s current strategy and signal concern to the Kremlin.
Further, more public demarches followed at SPIEF, where economic managers tried to sound the alarm bell for Putin that the financial system is approaching the danger zone. Some of Putin’s recent proposals look outright delusional. In particular, at SPIEF he called for, “wherever feasible… [achieving] integration between the defense industry and the civilian sector, facilitating the production of dual-use goods” – basically citing the late-Soviet model as an effective way to grow the economy.
Is there reason to believe that the demarches of the technocrats have been heard? We do not have an answer yet.
Kremlin-fueled uncertainty as the main risk factor for the economy
Autumn should add some certainty as to the outlook for Russia’s war economy. It is important to keep in mind that the horrors described at SPIEF by many Russian businesspeople are because of the current uncertainty. If they had a clear understanding of what the Kremlin has in mind (not just, for the fourth year in a row, hearing that everything is going “according to plan”), they could make moves to minimize potential losses and maximize potential gains.
The top leadership has repeatedly claimed that a normalization is forthcoming. But one has never materialized. The Kremlin promises “in principle” not to change the tax system, but in reality it changes it every year. At first the assets of “unfriendly” investors were expropriated, but soon, on dubious grounds, yours could be next.
The sense of total uncertainty on the part of economic actors is worse than a continuation of the war or efforts to make peace.
One of them was a meeting of the entire economic bloc of the government, the Central Bank and tax service, chaired by the prime minister, where for the first time a fiscal five-year plan of sorts was discussed instead of the usual three-year budget. This looked to be an attempt to calculate the longer-term consequences of the Kremlin’s current strategy and signal concern to the Kremlin.
Further, more public demarches followed at SPIEF, where economic managers tried to sound the alarm bell for Putin that the financial system is approaching the danger zone. Some of Putin’s recent proposals look outright delusional. In particular, at SPIEF he called for, “wherever feasible… [achieving] integration between the defense industry and the civilian sector, facilitating the production of dual-use goods” – basically citing the late-Soviet model as an effective way to grow the economy.
Is there reason to believe that the demarches of the technocrats have been heard? We do not have an answer yet.
Kremlin-fueled uncertainty as the main risk factor for the economy
Autumn should add some certainty as to the outlook for Russia’s war economy. It is important to keep in mind that the horrors described at SPIEF by many Russian businesspeople are because of the current uncertainty. If they had a clear understanding of what the Kremlin has in mind (not just, for the fourth year in a row, hearing that everything is going “according to plan”), they could make moves to minimize potential losses and maximize potential gains.
The top leadership has repeatedly claimed that a normalization is forthcoming. But one has never materialized. The Kremlin promises “in principle” not to change the tax system, but in reality it changes it every year. At first the assets of “unfriendly” investors were expropriated, but soon, on dubious grounds, yours could be next.
The sense of total uncertainty on the part of economic actors is worse than a continuation of the war or efforts to make peace.
“The Kremlin is fueling this sense of uncertainty, which is the main risk factor for the economy.”
Another disturbing recent development is erosion in the unity of the fiscal authorities. In spring 2022, they had rallied to coordinate a response to the unexpected headwinds caused by the war and sanctions, but now everyone is doing as they see fit, some citing “objective necessities” and others “market realities” to justify their actions. The recent meetings and sharp words likely point to coming personnel changes.
Still, the objective remains to get Putin to reveal his plans and how he intends to achieve them (e.g., through economic measures, lawfare).
No one believes Russia wants to bring foreign investors back since Prosecutor General Igor Krasnov was put in charge of regulating that process.
Only a rough understanding of the Kremlin’s economic vision can save the Russian economy from impending chaos, which everyone who understands economics is warning about.
All these internal factors are especially important considering that, in my view, there are no serious external forces that could threaten the Russian economy. The past few weeks have seen events that I long anticipated – for example, the G7 and EU backing down from lowering the price cap on Russian seaborne oil exports from $60 per barrel to $45 per barrel (or lower), as well as the blockage of the 18th EU sanctions package (by Hungary and Slovakia).
No one in their right mind expects the US to enact a 500% tariff on imports from all countries buying Russian energy exports.
Meanwhile, global oil prices barely reacted to the US bombing of Iran during the Israel-Iran war – even the slight jump from $64-66 per barrel to around $75 per barrel represented merely a brief reprieve in what is a very difficult situation for the Russian budget.
Still, the objective remains to get Putin to reveal his plans and how he intends to achieve them (e.g., through economic measures, lawfare).
No one believes Russia wants to bring foreign investors back since Prosecutor General Igor Krasnov was put in charge of regulating that process.
Only a rough understanding of the Kremlin’s economic vision can save the Russian economy from impending chaos, which everyone who understands economics is warning about.
All these internal factors are especially important considering that, in my view, there are no serious external forces that could threaten the Russian economy. The past few weeks have seen events that I long anticipated – for example, the G7 and EU backing down from lowering the price cap on Russian seaborne oil exports from $60 per barrel to $45 per barrel (or lower), as well as the blockage of the 18th EU sanctions package (by Hungary and Slovakia).
No one in their right mind expects the US to enact a 500% tariff on imports from all countries buying Russian energy exports.
Meanwhile, global oil prices barely reacted to the US bombing of Iran during the Israel-Iran war – even the slight jump from $64-66 per barrel to around $75 per barrel represented merely a brief reprieve in what is a very difficult situation for the Russian budget.
“In other words, a near-term collapse in the Russian economy could come about only because of the internal pressures that Putin’s actions are creating.”
This is why SPIEF turned into a sounding board for everyone who understands how dangerous the latest currents in economic policy are. Those who saved the regime back in 2022 are trying to consolidate to keep the Kremlin from making further mistakes.
How successful they will be remains to be seen, but they will try.
How successful they will be remains to be seen, but they will try.
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