Russia's Economic Crisis Deepens Amid Sanctions
The Russian ruble is experiencing a significant crisis, having fallen to its lowest levels since February 2022, primarily due to new US sanctions and escalating military expenditures. As reported by the Financial Times, the ruble plummeted by 10% against the dollar, reaching 115 rubles per dollar by November 27. Although there was a slight recovery to 106.44 rubles on November 28, the currency remains under pressure, reflecting a broader economic instability.
Impact of Sanctions on Russian Economy
The US Treasury's recent sanctions on over 50 Russian banks, including Gazprombank, are set to complicate gas transactions with Europe, effective December 20. This move is expected to exacerbate the ruble's decline, which has already fallen by 8% in the past month and 15% since the start of the year. President Vladimir Putin attempted to reassure the public, stating, "There is no reason to panic," but such comments often signal underlying economic troubles.
The Russian government plans to increase defense and security spending by 25% in 2025, potentially reaching 8% of the GDP, the highest since the Cold War. This increase comes amid rising inflation, which has surpassed 8% annually, placing additional strain on the economy.
Challenges Ahead for Russia
The depreciation of the ruble is raising import costs, particularly from China, Russia's largest trading partner. The ruble's value fell by 7% against the Chinese yuan last month, increasing the costs of essential imports, including military equipment. In response, the Russian Central Bank has raised interest rates to 21%, with expectations that they may reach 25% by year-end. However, government support for consumers and businesses is diminishing, further intensifying economic pressures.
Looking ahead, the Financial Times predicts a sharp slowdown in the Russian economy, with growth expected to drop to just 1% in 2025, down from a projected 3.1% for 2024. With sovereign wealth fund reserves dwindling to $55 billion, the Russian government faces significant challenges in managing a growing deficit. As Western sanctions persist and military costs rise, Russia may enter a more challenging economic phase, prioritizing military spending over the welfare of its citizens.
