By Kontur | 2025-06-27

If a deck of tarot cards and a plush toy tucked away in photo ops can capture the mood of a nation, Russia's economic future is already being divined in caricature.

At the 2025 St. Petersburg International Economic Forum (SPIEF), which took place on June 18-21, attendees might have stumbled upon figurines of politicians modeled after Labubu -- the Chinese monster elf that has become the object of a toy-buying fad around the world -- or tarot cards reimagining Central Bank Governor Elvira Nabiullina as the Queen of Wands.

These odd souvenirs appeared in social media photos, part of an eccentric collage that now frames one of Russia's most serious economic conversations. It was surreal. It was theatrical. And it was telling.

From 'Davos' to theater set

Once the Kremlin's most prestigious business gathering, SPIEF now resembles a stage-managed performance: heavy on spectacle, light on substance. Instead of projecting confidence to the world, the forum has inadvertently highlighted the growing cracks in Russia's wartime economy.

The country's top officials did not downplay the danger: they warned of recession, stagflation and a looming financial reckoning. But amid the glittering set pieces and digital fanfare, President Vladimir Putin insisted that all was well.

For years, SPIEF served as a venue for investment deals and policy announcements. But since Russia's 2022 invasion of Ukraine, Western business has largely vanished from the scene, replaced by loyalists, military contractors and regional governors presenting what Meduza journalist Andrei Pertsev called a "territory of presented successes."

"Since 2022, news of signed contracts has largely been replaced by images and videos of bizarre booths, robots -- often Chinese-made -- and branded figurines," he was quoted as saying in a Telegram post on June 21.

"Once aimed at attracting international attention, the forum has, over the course of the war, turned into a domestic showcase of Russian economic 'successes' -- many of them exaggerated or entirely symbolic."

Behind the curtain

The real news, however, came not from stage-managed panels but from the growing dissonance between Putin's optimistic rhetoric and the warnings issued by his own economic officials.

In his keynote address on June 20, Putin boasted that Russia's economy had grown by more than 4% annually over the past two years, outpacing the global average. He pledged to reduce poverty, boost wages and elevate Russia into the top 20 countries for business.

When asked about reports that the ongoing war in Ukraine was "killing" the Russian economy, Putin replied quoting American writer Mark Twain, "Rumors of my death are greatly exaggerated."

But beyond the cameras and cartoonish mascots, the mood was more sober. Economy Minister Maxim Reshetnikov warned bluntly that the country was facing a recession.

"The numbers indicate cooling, but all our numbers are [like] a rear-view mirror. Judging by the way businesses currently feel and the indicators, we are already, it seems to me, on the brink of going into a recession," he said on June 19.

Central Bank Governor Nabiullina acknowledged that the growth model fueled by wartime stimulus had "exhausted its resources."

These included not just monetary reserves but more fundamental constraints: a shrinking labor force, overstretched production capacity and rampant inflation.

"Our growth over the past two years was relatively strong, largely due to the mobilization of underutilized resources," Nabiullina explained.

Indeed, the data are difficult to ignore. Russia's GDP growth slowed to 1.4% in the first quarter of 2025, down sharply from the wartime highs of 2023 and 2024.

Inflation remains stubbornly high, hovering near 10% per year. The Central Bank, which had raised interest rates to 21% to contain inflation, only recently cut them to 20% amid growing calls for monetary easing. Industrial production and manufacturing output have slumped, and even defense sector gains are beginning to stall.

The mirage of stability

Much of Russia's economic resilience since 2022 has been attributed to what economists call "military Keynesianism" -- the practice of fueling growth through massive state defense spending. By 2024, the military-industrial complex accounted for $167 billion in output, more than 6% of GDP.

Real wages rose, particularly in war-related industries, and consumer sentiment held up thanks to generous military bonuses and pensions.

But this model has clear limits.

Now, Russia faces a chronic labor shortage exacerbated by mobilization, battlefield losses and mass emigration. The working-age population is shrinking, with the 16-to-35 demographic at its lowest level since the 1990s. Productivity gains have lagged, especially outside the defense sector, while inflation continues to erode household purchasing power.

Even among Putin's loyal economic aides, dissent is emerging.

On June 20, Sberbank CEO German Gref warned of an approaching "perfect storm."

"The real interest rate is extremely high, and that's putting serious pressure on business profitability. Companies are adjusting their plans, unfortunately delaying investments. This poses a threat not only to economic growth this year but for the next two to three years as well," he explained.

Gref said the ruble's current exchange rate, hovering around 78–79 per US dollar, is well below its true equilibrium, which he placed above 100, and said it was significantly hurting export-dependent sectors critical to the national budget.

Meanwhile, budget committee chair Andrey Makarov openly worried about repeating the financial collapse that helped dissolve the Soviet Union. In his view, the collapse happened because the state simply ran out of money to sustain the population's standard of living.

"[T]he needs of working people will continue to grow steadily, while the state may not always have the funds to meet those ever-increasing demands," he said.

Yet for all the internal debate, the direction from the Kremlin remains largely unchanged. Putin reiterated Russia's claim to Ukrainian territory and offered no indication of scaling back the war effort. Such remarks do little to reassure investors or signal a pivot toward stabilization.