Vladivostok, Sept 6 (V7N) – Russian President Vladimir Putin dismissed claims on Friday that the country’s economy is stagnating, despite the central bank’s latest report showing two consecutive quarters of GDP contraction, a widely accepted marker of a technical recession.

Speaking at the Eastern Economic Forum in the Pacific port city of Vladivostok, Putin defended the central bank’s policy of maintaining high interest rates, currently at 18%, as necessary to contain inflation. The strategy has drawn strong criticism from business leaders and bankers, who argue it risks further weakening growth.

The central bank’s report this week showed that Russia’s gross domestic product had contracted for two straight quarters. Official estimates placed first-quarter contraction at 0.6%, while second-quarter data has not yet been published. Economists say this pattern reflects recessionary conditions, though Kremlin officials continue to dispute that definition.

Sberbank CEO German Gref, a close ally of Putin and one of Russia’s most influential bankers, stated earlier this week that the economy was in “technical stagnation” and called for sharp rate cuts. Putin rejected the claim, saying he regularly consults with Gref but does not share his assessment.

Despite government denials, concerns over growth persist. Russian news outlets reported that the economy is expected to grow by just 1.2% in 2025, a steep slowdown compared with the 4.3% expansion projected for 2024. Rising deficits, downgraded growth forecasts, and war-related spending pressures have all signaled mounting strain as Russia enters the fourth year of its war in Ukraine.

Economist Evgeny Kogan argued that the central bank’s own data proved a recession had already begun, pointing out that recent growth was largely driven by state spending, which faces limits amid inflationary risks. Gref noted that growth in July and August was “close to zero.” However, Andrei Kostin, head of VTB Bank, said he had not observed a major downturn in the second quarter, emphasizing that “life has shown that our economy is quite resilient.”

Putin acknowledged frustration over high interest rates but insisted they were essential to prevent runaway inflation. Annual inflation was recorded at 8.79% in July, down from 9.40% in June, with the central bank targeting 4% by 2026. The bank previously hiked its key rate to 21%, the highest since the early 2000s, before lowering it gradually to 18% in July. Its next rate decision is expected on September 12.

“If inflation overwhelms the economy, nothing good will come of it,” Putin said. “It becomes impossible to forecast anything even for 10 days, let alone years ahead.” He called for a “soft landing” strategy and ruled out additional tax hikes but noted that Russia had fiscal space to expand its budget deficit, given its relatively low debt-to-GDP ratio of about 19%, among the lowest globally.

Russia’s 2025 budget deficit is expected to exceed the planned 1.7% of GDP, meaning debt levels will rise. While Putin emphasized Russia’s resilience, analysts warn that war spending, sanctions, shrinking foreign investment, and reduced aid flows will continue to weigh on growth in the years ahead.

News Source: Reuters

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