Russia reported strong economic growth for 2024 on Friday, as record spending on the military offensive against Ukraine outweighed the impact of Western sanctions.
Moscow's massive ramp-up in military spending on soldiers and weapons has helped it defy predictions of a deep recession following the launch of its military campaign in February 2022.
However, rapid growth has triggered high inflation and severe labor shortages at home, raising concerns within the Kremlin.
The economy expanded by 4.1 percent in 2024, Prime Minister Mikhail Mishustin told Russian President Vladimir Putin in a televised meeting, citing data from the Rosstat statistics agency. This was the same pace of growth as in 2023, Mishustin said, revising the previous figure of a 3.6 percent expansion for that year.
'Good Result'
Putin praised the economic performance but urged Mishustin to address rising prices.
"Overall, the result is good," Putin said. "The task for the current year is to reach a more balanced growth trajectory and achieve a reduction in inflation," he added.
Mishustin acknowledged that "the main challenge is inflation," which stood at 9.5 percent last year.
Surging prices for essential goods have made headlines in state media, which are usually uncritical of the Kremlin.
The cost of butter rose by 36 percent in 2024, according to Rosstat, with overall food prices climbing by more than 11 percent.
These price hikes have been driven by a sharp increase in state spending amid the Ukraine offensive. State expenditure is projected to be two-thirds higher in 2025 compared to 2021, before Russia’s military action.
Putin stated last year that Moscow is spending nearly nine percent of its GDP on defense and security.
Slower Growth Forecast
Russian officials and economists predict that the economy will slow down this year. A survey of analysts by the central bank, published this week, shows expectations of a 1.6 percent growth in 2025.
"Perhaps there will not be such significant growth in the following year, but it is very important to curb inflation," Mishustin told Putin.
After months of warning that the economy was "overheating," the central bank announced this week that growth is expected to return to "more sustainable rates."
The central bank has raised interest rates to a two-decade high of 21 percent in an effort to control inflation and cool the economy, but the higher borrowing costs have caused frustration among businesses and households.
The West had hoped that sanctions would cripple Russia’s economy and prevent Moscow from financing its military offensive.
However, the central bank reports that Russia's economy is now more than six percent larger than it was before the offensive began.
Before the Ukraine invasion, Russia had faced nearly a decade of sluggish growth and declining living standards, struggling under sanctions and restrained domestic spending after Moscow annexed Crimea in 2014.
With AFP
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