By John Q. Hosedrinker 
Sberbank CEO German Gref has warned of significant economic challenges ahead for Russia, predicting difficulties stemming from military spending, inflation, and high interest rates that could extend into 2026. The quality of loan portfolios is declining, with increasing requests for debt restructuring from borrowers. Bloomberg reports a growing risk of a banking crisis within the next year, citing a surge in defaults not yet reflected in official statistics. Corporate debt has risen substantially, particularly among Russia’s largest companies, and mutual non-payments between companies are also increasing.
Read the original article here
Tough times ahead for Russian economy, the CEO of Russia’s largest bank warns, a headline that certainly doesn’t come as a shock. It’s almost as if the rumblings of economic hardship have been a constant background hum, a grim soundtrack to the unfolding events. It’s a bit like waiting for a storm – you can see the dark clouds gathering, feel the change in the air, and know it’s only a matter of time before the downpour begins. It seems the CEO’s warning is just the latest confirmation that the storm is well and truly upon them.
The fact that the warning has come out is likely a carefully considered move, a way of preparing the Russian people for some unpleasant realities. They usually do this before dropping some bad news on the populace. Maybe it’s the harbinger of a recession, or perhaps it’s a prelude to another round of mobilization, or even a less-than-glorious conclusion to the “special military operation,” as they call it. You’d think they would have learned the lesson about starting conflicts they can’t afford to finish. They will need to cut back on other things, too. Maybe take out coffee and food or at least consider getting a second job. This is happening because the special operation they started three years ago resulted in over a million Russian casualties and billions in damage due to sanctions. Whoopsie, indeed.
The economic strain is likely being amplified by the ongoing war in Ukraine. The sheer cost of the conflict, coupled with the weight of international sanctions, is clearly putting a strain on the Russian economy. Cutting defense spending, if that’s actually happening, would suggest that the pressure is really on. The resources required to rebuild the military, which is estimated by some to take at least five years to reach pre-2022 levels, further compounds the problem. If they can’t replenish their military, they won’t be able to project power anywhere.
There is some evidence that the Russian banking sector is starting to feel the pressure, too. Accumulating defaults that are not yet reflected in the official statistics. Some sources claim problem loans could reach a significant percentage of the banking system’s capital. That sounds like a recipe for some serious trouble.
It’s difficult to envision a rosy picture for Russia. The country doesn’t have a cohesive ideology to bring its people together, like the Soviet Union did during its peak. Efforts to demonize the West haven’t been successful. The army is exhausted and demoralized. They are a second-rate army, really, whose only strength is that they have nuclear weapons. If they are cutting back on military spending, then they are in trouble.
The whole situation is a complex mix of challenges. While Russia has oil, and some people predict that sanctions will be lifted, the long-term prospects look undeniably challenging. The country is falling apart piece by piece, and the CEO’s warning, it appears, is just another grim data point in that narrative. The path ahead looks increasingly difficult, with the potential for things to get significantly worse before they get better. And they are most likely going to get a lot worse.