Labor Crisis, War's Impact, and Recession Fears Loom

Russian businesses are grappling with a significant labor shortage, a situation that poses a serious threat to the country's economic stability. The government's shift towards a war economy, marked by substantial investment in defense, has fueled economic growth in recent years. This increased spending, while boosting growth figures, has also contributed to inflationary pressures.

The high interest rates implemented by the Central Bank, initially reaching 21%, are a consequence of these inflationary pressures. These rates pose a risk to companies with significant debt, potentially leading to bankruptcies and hindering their ability to secure funding for future investments. The labor shortage is a direct result of the ongoing conflict in Ukraine, with a substantial number of workers either conscripted into the military or choosing to leave the country to avoid conscription.

The scarcity of workers has led to wage increases, further contributing to inflation. The economic growth experienced in Russia, driven by defense spending, appears to be nearing its end. Economic forecasts suggest a significant slowdown in growth in the coming year.

Adding to the concerns, the economy minister has warned of a potential recession following a period of economic overheating. This warning was echoed by the governor of the Central Bank, who highlighted the depletion of "free resources" that had previously supported economic expansion. These resources include labor, industrial capacity, bank capital reserves, and liquid assets from the National Wealth Fund.