Putin acts like he doesn't care about peace. Russia's economy could depend on it

It hardly signals that an o branch could be ext, or accepted, any time soon.Moreover, the Kremlin's cool response to U.S

President Donald Trump's pledge to arrange a bilateral meeting between Putin and Ukrainian President Volodymyr Zelenskyy, spoke volumes, with Russia barely ing on the offer of talks, let alone acquiescing to them.Russia's finance ministry stated earlier in August that the budget deficit had reached 4.88 trillion rubles ($61.1 billion) between January and July this year, equating to 2.2% of GDP

During the same timeframe, government spending "surged by 20.8% to 25.19 trillion rubles ($317.8 billion)," state news agency TASS reported, citing the finance ministry.Unprecedented levels of government expenditure on defense have, up until this point, been supported by the continuing sales of oil and gas to Russian allies China and India, and an increase in taxes.But oil export revenues are declining amid sanctions and lower global demand, which means the Kremlin might be forced to consider other spending cuts or further tax rises.In the meantime, Russia's growth outlook is not so rosy either

In 2024, Russia grew 4.3%, but this year, it's expected to expand a far more meager 1% to 2%, according to the Central Bank of Russia (CBR)

That poses a risk for the Kremlin as it considers whether to pursue peace, or continue the war against Ukraine while it has an advantage on the battlefield.watch now5:2905:29A lot still needs to happen before Ukraine-Russia peace deal: intelligence expert Kendall-TaylorClosing Bell: Overtime"For the Kremlin, a brief period of low growth is tolerable, though combined with lower oil prices, it would reduce fiscal revenues

The main gamble is that the cooling of the economy won't trigger a longed recession," Alexander Kolyandr, senior fellow at the Center for European Policy Analysis (CEPA), said in analysis in late July. "So far, the government can maintain defense and social spending, but may need to cut elsewhere, which would put it on a dangerous path," he added.Reduced spending or austerity measures could further slow economic growth and wage increases at a time when sanctions, low oil prices, and challenges to perty rights discourage private capital investment, he noted."On the other hand, if the government doesn't reduce fiscal support, there's a risk high inflation will return," Kolyandr said.Inflationary pressures, mpted largely by the surge in defense spending, sanctions and labor shortages that have caused imbalances in supply and demand in other industrial sectors, as well as rampant food price hikes, are also on the Kremlin's mind amid fears that the economy has been overheating.Russia's central bank has spent several years trying to tame the country's stubbornly high inflation rate, which hit 17.8% just after Russia invaded Ukraine in February 2022

It also lowered its inflation outlook for 2025, forecasting a 4% threshold would be reached in 2026."Current inflationary pressures, including underlying ones, are declining faster than previously forecast," the central bank said after its July 25 meeting, adding that "domestic demand growth is slowing

The economy continues to return to a balanced growth path." CEPA's Kolyandr remarked that a "balanced growth path" was "a euphemism for anemic growth," warning that while the CBR was "claiming a victory over galloping prices ... it's come at a price."Recession riskPutin is fully aware of the economic challenges Russia faces, having warned in June that the economy must not be allowed to drift into recession."Balanced growth is moderate inflation, low unemployment, and continued positive economic dynamics ..

At the same time, some specialists and experts point to the risks of stagnation and even recession

This should not be allowed under any circumstances," Putin said, in remarks to the St

Petersburg International Economic Forum and translated by Reuters.Russia's President Vladimir Putin speaks during a plenary session of the St

Anton Vaganov | ReutersThe growth data certainly suggests a slowdown is underway, with growth of 1.1% year-on-year in the second quarter, down from a 1.4% expansion in the first quarter."The economy is ly struggling amidst imbalances that have built up due to the war effort

We expect growth to slow further over the coming quarters," Liam Peach, senior emerging economist at Capital Economics, stated in ed analysis in August."The big picture ... is that Russia's economy is struggling under the weight of high interest rates and the war effort

A longed period of weak growth lies in store," Peach added."Surveys of sentiment and investment intentions have fallen to multi-year lows

The labour market is cooling and weaker demand will help to ease inflation pressures

Capital Economics predicted GDP growth of 0.8% over 2025, "with a recession this year still a very high risk."