Until recently, the Russian government had cushioned the economy from higher borrowing costs. A variety of schemes made it easier for households to suspend debt payments and for firms to borrow at lower subsidised rates, with the government stepping in to compensate banks for lost income. There are signs, though, that such programmes are becoming unaffordable. A mortgage-subsidy scheme, which had allowed borrowing at a cost of just 8% when official rates were much higher, ended on July 1st. Mortgage volumes halved in the following month. Corporate bankruptcies have risen by 20% this year. The Russian Union of Industrialists and Entrepreneurs, a trade body, reckons investment plans for next year are being put on hold owing to heavy borrowing costs.
Higher interest rates will crimp spending by both firms and consumers. The IMF expects Russian economic growth to slow sharply to 1.3% next year. Even VEB, the state-run development bank, has cut its growth estimate to 2%. A combination of lower investment and manpower lost to the front is taking a toll. The need to maintain the value of the rouble to pay for crucial imports is a vulnerability for Mr Putin, and one which could soon take a toll on his ability to fight. He may be hoping that Donald Trump keeps his promise to bring the conflict to an end. Waging a 3% war is one thing; a 21% war is quite another.
Russia’s economy has confounded analysts since the country invaded Ukraine in February 2022.
— The Economist (@TheEconomist) November 20, 2024
Now, however, Vladimir Putin may be hoping that Donald Trump keeps his promise to bring the conflict to an end https://t.co/EQL3wCoHSh
