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Russia’s economy is wobbling under a mountain of pressure, and the cracks are becoming harder to hide. This week, the ruble plunged to 114 against the dollar, its weakest since the chaotic days following Moscow’s invasion of Ukraine in 2022.

The timing couldn’t be worse for President Vlad Putin, whose forces are still bombing Ukrainian cities and eking out incremental gains on the eastern front. While Russia insists it has everything under control, the numbers paint a different story, one that suggests the economy may never have been as strong as the Kremlin made it out to be.

Putin is not worried

The latest ruble crash followed a fresh round of U.S. sanctions targeting Gazprombank, Russia’s primary financial artery for energy payments. These sanctions hit hard, disrupting Moscow’s ability to fund its ongoing war efforts.

Russia’s Central Bank had to step in, halting foreign purchases of rubles to stabilize its battered currency. The intervention brought minor relief, with the ruble trading at 110 against the dollar by Thursday. But the damage is already done, and experts are questioning how long Moscow can keep up the facade of economic strength.

Putin, as expected, brushed off concerns, saying seasonal factors and budget-related issues triggered the ruble’s slide. “There are absolutely no grounds for panic,” he told reporters.

Kremlin spokesman Dmitry Peskov also claimed the currency’s performance won’t affect ordinary Russians since their incomes are in rubles anyway. But for a country neck-deep in sanctions and fighting a costly war, this optimism feels like wishful thinking.

China: Russia’s lifeline under sanctions

Meanwhile, Moscow has found an unlikely savior in China. Beijing has become Russia’s largest supplier of goods banned under Western sanctions, filling critical gaps in everything from technology to machinery. 

The two countries now bypass the dollar in their transactions, relying heavily on the yuan. Economists warn that this dynamic could backfire in the long run. It’s easy to see why.

The ruble’s decline isn’t just about sanctions. Inflation in Russia is climbing, fueled by skyrocketing government spending on the war. The Central Bank’s tight monetary policies are meant to keep inflation in check, but they’ve triggered a clash within Russia’s power circles.

Officially, Russia’s economy seems to be holding up. The International Monetary Fund predicts 3.6% GDP growth for 2024, putting Russia among the world’s fastest-growing economies outside India and China. Russian officials proudly cite growth rates of 5.4% and 4.1% for the first two quarters of 2023.

On paper, this looks like a victory for Mr. Putin. But critics argue that these numbers are more propaganda than reality. Since the invasion, the Kremlin has weaponized economic data, using it to project an image of resilience.

Vladimir Milov, an economist and exiled opposition activist, has questioned the reliability of these figures, noting that the government’s tight grip on data makes it impossible to separate fact from fiction.

Even William Pomeranz of the Wilson Center has warned that the economy might be sitting on a “social explosion,” with rising costs and falling incomes pushing Russians to the brink.

Labor shortages and supply chain disruptions are adding to the strain. The war has drained Russia’s workforce, leaving industries scrambling to fill gaps.

Meanwhile, the cost of living continues to rise, with food and energy prices putting extra pressure on households. The government has tried to put the blame on Western sanctions, calling them the main driver of inflation.

Even the military budget, which has ballooned since the invasion, is feeling the squeeze. A recent decree cut state payments for certain categories of wounded soldiers, which brought outrage.

Balancing butter and guns

Moscow’s “guns over butter” strategy has its limits, and the flaws are showing. Putin has denied that rising defense spending comes at the expense of ordinary Russians.

The government is pouring money into weapons production and military operations, leaving little room for other priorities. This imbalance is unsustainable, especially as sanctions tighten and oil revenues become less reliable.

Energy exports have been Russia’s saving grace, keeping cash flowing even as Western markets shut their doors. Countries willing to ignore the war, like China and India, have continued buying Russian oil and gas. But even this lifeline is under threat.

The global push for renewable energy and falling oil prices are eroding Russia’s energy dominance, leaving the Kremlin with fewer options.

The IMF’s latest forecast predicts a sharp slowdown in 2025, with growth expected to drop to just 1.3%. Slower wage growth, reduced private investment, and a tightening labor market are all contributing factors. While Russia may claim short-term victories, the long-term outlook is bleak.

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