The Shanghai Summit cooperation organization (OCS), which ended Monday night in Tianjin, became force for Xi Jinping. Some twenty leaders surrounded the Chinese head of state and symbolized an alternative bloc to the west. Among them were Russian President Vladimir Putin, who crosses a crucial moment to harden his ties with his Indian and Chinese counterparts, while the Russian economy is the wing.
Russian GDP collapsed in 2022 due to the beginning of the conflict in Ukraine and the arrival of the first Western sanctions. A spectacular rebound followed: for two years, the country’s growth was driven by the war economy between public orders and the overheated defense industry. But recently, dynamics runs out of Steam. Less oil income, reinforced sanctions and a budget deficit in the explosion: the Russian economy accuses the coup.
So much so that last June, in the St. Petersburg forum, the “Davos Russian”. The Minister of the Economy acknowledged that Russia was “on the verge of the recession.” Vladimir Putin responded immediately:
Defense sector dependence
Russian growth today depends almost exclusively on defense. The last report in the macroeconomic and prognosis center (CMASF, linked to the Kremlin) published at the end of July, highlights a disturbing reality: excluding defense industries, civil production contracts every month at 0.3%.
And for a good reason, the automotive sector has been hesitating as this 25 % drop in new car sales since the beginning of the year. The Chief of Avtovaz (Lada) was already playing the alarm in April against unchanged rates of the Central Bank and the increase in Chinese competition. For its part, the construction sector is immersing, all basic materials (cement, etc.) that show strong production cuts. The sector thus returned to its summer level 2020, in the middle of a Covid crisis. Even the Russian military industry, despite record expenses, would be in Decline according to a recent report by the group of experts Chatham House.
Decreased energy income
Gas and oil weigh 16 % of Russian GDP, against 17 % before the war, their participation is slightly decreased. But in July, revenues from gas and oil collapsed in more than a third compared to July 2024 according to Reuters data. A fall explained by the fall in world prices and the loss of the European market, but also for the Indian withdrawal. Under the pressure of Donald Trump, who threatens to carry the tax cane to all those who buy Russian oil, New Delhi has reduced their imports. And despite the new points of sale, such as the Turkish or China market, which increases its energy imports from Russia, Moscow cannot fill the Indian losses.
Russian, still high inflation decreases slowly, by more than 10 % in March to 8.8 % in July, after recent falls in guide rates that increased from 21 % to 18 % since June. With respect to food, the signals are still particularly disturbing: the potato, the basic ingredient, saw its price by 66 % in one year, while rescs increased by 15 %, a record since 2002, the date on which the first official statistics increase. Therefore, Russia is a war economy in Trompe-L’Oeil: the broad plan shows an economy that resists, but the tight plan reveals the fragility of the civil sectors.
Source: BFM TV
