A recent clash between Russian President Vladimir Putin and Sberbank CEO German Gref shows an increasing disconnect between the Kremlin and Russia’s economic community, experts say.
Gref, head of Russia’s largest bank, told the Eastern Economic Forum on Sept. 5 that Russia’s GDP growth had slowed to near zero in July and August after a sharp drop in the April–June quarter.
“The second quarter can practically be considered technical stagnation,” he said.
Putin pushed back, insisting lending continued and that the slowdown only reflected “a soft landing” to stabilize prices.
“Ask Gref. Has lending stopped? No. The pace has just slowed,” Putin said.
Experts note that the rare public clash revealed a deep gap between the Russian leadership and financial specialists over the true costs of the war in Ukraine.
“Public discussion is the only way today for economists to convey this problem to Russia’s top leadership,” said Oleh Pendzin, economist and head of the Economic Discussion Club public association.
“You can see how cautiously Gref speaks, making sure it doesn’t turn into accusations against him from Russia’s Federal Security Service (FSB).”
War-fueled growth fading
Official data show Russia’s GDP grew 1.1% year-on-year in April–June, down from 1.4% in the first quarter and far below the 4.3% and 5.4% growth rates of the same periods in 2024.
“The economy is not entering stagnation; it already has,” Pendzin said.
Some analysts say the picture is worse.
“The current Russian leadership is not economically oriented.”
Ivan Us, associate expert at the United Ukraine Analytical Center, noted that Russia’s state-controlled VTB Bank recorded two consecutive quarterly contractions of 0.6%.
“That’s why VTB concluded Russia has entered a technical recession, not stagnation,” Us said. “Gref is closer to the truth when he says stagnation — he is softening the effect, because in reality it’s a decline.”
The slowdown follows years of war-driven expansion fueled by record military spending.In 2025, defense spending reached 7.2% of GDP — the highest since the end of the Cold War.
Civilian sectors, starved of labor and capital, are now in decline as workers are pulled into the army or defense plants.
Rising deficit, shrinking revenues
Experts suggest that discussions about stagnation and inflation in Russia are, in reality, focused on finding ways to cover the country’s budget deficit.
By the end of August, the deficit had reached 4.19 trillion rubles ($49.4 billion), already exceeding the government’s annual target.
Sanctions, lower oil prices and a stronger ruble have further cut export revenues.
“All these discussions about stagnation and inflation are actually about finding ways to cover the budget deficit,” Pendzin said. “But Russia is cut off from international financial markets (due to sanctions), so the only source to cover the deficit is the domestic economy.”
A man walks past a currency exchange office in Moscow, Russia, on Nov. 23, 2024. (Natalia Kolesnikova / AFP via Getty Images)
Reuters reported on Aug. 20, citing sources, that the Kremlin was considering tax hikes. The ruble is also expected to weaken further, with forecasts of 100–105 rubles to the dollar.
But both measures risk worsening inflation, already the public’s top concern.
A June survey by the independent Russian pollster Levada Center found 58% of Russians listed rising prices as their top concern, while only 33% cited the war against Ukraine.
Central Bank caught in the middle
The Central Bank has tried to balance growth and inflation by gradually cutting its key interest rate, lowering it to 17% on Sept. 12 after two earlier reductions this year.
Gref said the rate should fall closer to 12% to “create hope for an economic recovery.”
Central Bank Governor Elvira Nabiullina has warned that easing too quickly would spark runaway inflation, which reached 8.1% in August — still well above the bank’s 4–5% target.
Speaking at the Eastern Economic Forum on Sept. 5, Putin said that lowering the Central Bank’s key interest rate too quickly could result in rapid price hikes.
A man walks past the Russian Central Bank headquarters in downtown Moscow, Russia on Sept. 6, 2023. (Alexander Nemenov/AFP via Getty Images)
“I’m sure many people sitting in this room will say ‘yes, this is outrageous, it’s impossible, the key rate needs to be cut sharply.’ But then prices would rise,” Putin said. “The Central Bank is struggling to combat this inflation and aims to return to desirable indicators.”
According to Us, lowering rates would do little to solve Russia’s structural problems.
“The rise in prices is Nabiullina’s main argument in closed sessions with Putin. When he asks why the rate is not lowered, she replies, ‘Do you want inflation to rise?’” he said.
“The main issue is the costs of the war, which the rate cannot offset.”
Disconnect at the top
Experts suggested the spat showed how far the Kremlin’s political priorities differ from economic reality.
“The current Russian leadership is not economically oriented,” Us said.
“They continue the full-scale war against Ukraine and say, ‘We don’t care about anything else, we just want to fight, period.’”
Pendzin added that Gref’s comments highlight “the huge gap between the views of the Russian economic community and the top leadership of the Russian Federation.”
“So there’s really nothing good there right now. And all of this is being brought into public discussion because the leadership doesn’t understand,” he said.
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