Russia’s policymakers are so fixated on inflation that they are missing the bigger picture, one of the country’s most powerful bankers said last week.
“We’ve been so focused on fighting inflation lately that we’ve somewhat forgotten about economic growth. Without economic growth, there will be nothing. We won’t be able to solve social problems or anything else,” German Gref, the CEO of Sberbank, told Russia’s State Council on Demographic and Family Policy on Thursday.
“All economic growth depends on two factors: labor productivity and the number of people employed,” said Gref, who was Russia’s economy minister from 2000 to 2007.
But both of those pillars are under pressure.
“In principle, it is achievable if we begin actively using artificial intelligence, robotics, and all other new technologies, but this requires significant investment and a major commitment to education, science, and so on,” Gref said.
However, “this will be difficult to achieve given the capital shortage and the high interest rates we have today,” he added.
Gref’s comments came before Russia’s central bank cut its key interest rate by 50 basis points to 16.5% on Friday.
Business leaders have been pushing back against the central bank’s tight monetary policy, arguing that sky-high borrowing costs are choking lending and investment. The bank has defended its stance, saying high rates are necessary to curb inflation, which stood around 6.4% in the third quarter.
Gref projected that Russia’s GDP growth rate over the next two years would hover between 1% and 1.5%, and that this year’s growth could slump to just 0.8% — sharply lower than Russia’s 4.3% GDP expansion recorded last year.
Earlier this month, a top Russian business leader warned that the country’s economy has slowed to a pace that could jeopardize its ability to cover surging defense, security, and social costs.
A shrinking workforce
Russia is facing a deepening demographic crisis, with a looming labor shortage that could reach nearly 11 million workers by 2030, Anton Kotyakov, Russia’s labor minister, said in July.
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The war in Ukraine has only worsened the problem, as battlefield casualties and a mass exodus of young professionals deplete the country’s working-age population.
Russia has leaned on foreign workers, mainly from Central Asia, to fill labor gaps, but Gref said the country is “engaging in negative selection.”
“We mostly attract very low-skilled labor, while we ourselves are losing highly qualified specialists,” he said, urging Moscow to actively attract skilled professionals from abroad and offer incentives for foreign graduates to stay in Russia.
“It is a matter of national security and the survival of the country,” he said.
Russia’s demographic squeeze is already distorting its economy, keeping unemployment low at around 2.1% and fueling inflationary pressure through rapid wage growth.
Businesses are already struggling to cope. Employers are increasingly hiring retirees and teenagers to plug staffing gaps in an economy distorted by wartime spending.
Russian President Vladimir Putin has made population growth a national priority, calling it a matter of “ethnic survival” and urging women to have as many as eight children.
In 2024, births in Russia fell to 1.22 million — the lowest since 1999 — while deaths rose to 1.82 million, according to government data.
