**Russia’s Wartime Economic Momentum Fades**
The Russian economy, once driven by a strong wartime momentum, is now on the verge of recession. This warning comes from Elvira Nabiullina, Russia’s Central Bank Governor, who spoke at the St. Petersburg International Economic Forum.
Nabiullina stated that Russia had grown for two years due to “free resources” such as labor, industrial capacity, bank capital reserves, and liquid assets from the National Wealth Fund (NWF). However, these resources are now nearly depleted, which means that the country can no longer rely on them to sustain growth.
**Labor Shortage and Industrial Capacity**
The Russian unemployment rate has dropped to a historic low of 2.3%, but mass emigration and large-scale wartime recruitment have created a labor shortage estimated at 2 million people. Industrial capacity utilization has surged beyond 80%, the highest in modern Russian history, which indicates that the country’s factories are working at full capacity.
**Economic Slowing Down**
Official data show that GDP growth slowed from 4.1% in late 2023 to just 1.4% in the first quarter of 2024. Business profits in March fell by one-third overall and dropped by half in the critical oil and gas sector. Industrial growth stagnated at 1.2% year-over-year between January and April, while civilian sectors of the economy began shrinking.
**Government Warning**
Russian Economy Minister Maxim Reshetnikov warned that the country’s economy is now “on the verge of a transition to recession.” An anonymous Russian analyst told Novaya Gazeta Europe that government technocrats are effectively telling Russian President Vladimir Putin it’s time to choose between “war or economy.”
**Consequences of Wartime Spending**
Russia has faced rising inflation due to record military spending, pushing the central bank to maintain high interest rates. The bank cut the rate slightly from 21% to 20% earlier in June, despite concerns about weakened private investment.
**Regional Developments**
In other news, Ukrainian air defenses shot down 34 drones and intercepted or disappeared 36 others launched by Russian forces overnight. Ukrainian forces also struck residential buildings in Odesa, killing a civilian and injuring at least 14 others.
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