Top Russian banker warns Moscow is fighting a bad economic battle

Russian policymakers are so obsessed with inflation that they fail to see the bigger picture, one of the country’s most powerful bankers said last week.

“We have been so focused lately on fighting inflation that we have somewhat forgotten about economic growth. Without economic growth there will be nothing. We will not be able to solve social problems or anything else,” German Gref, CEO of Sberbank, told Russia’s State Council for Demographic and Family Policy on Thursday.

“All economic growth depends on two factors: labor productivity and the number of people employed,” said Gref, who served as Russian economy minister from 2000 to 2007.

But these two pillars are under pressure.

“In principle, this is achievable if we start actively using artificial intelligence, robotics and all other new technologies, but this requires significant investments and major commitment to education, science, etc.,” Gref said.

However, “this will be difficult to achieve given the shortage of capital and the high interest rates we are experiencing today,” he added.

Gref’s comments came before the Russian central bank cut its key interest rate by 50 basis points to 16.5% on Friday.

Business leaders oppose the central bank’s restrictive monetary policy, arguing that sky-high borrowing costs are stifling lending and investment. The bank defended its position, saying high rates are needed to curb inflation, which hovered around 6.4% in the third quarter.

Gref predicts that Russia’s GDP growth rate over the next two years will range between 1% and 1.5%, and that this year’s growth could drop to just 0.8%, significantly lower than Russia’s GDP expansion of 4.3% recorded last year.

Earlier this month, a top Russian business leader warned that the country’s economy had slowed at a pace that could jeopardize its ability to cover rising defense, security and social costs.

A decreasing workforce

Russia faces 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.

The war in Ukraine has only exacerbated the problem, as battlefield casualties and a mass exodus of young professionals deplete the country’s working-age population.

Russia has relied on foreign workers, mainly from Central Asia, to fill its labor shortages, but Gref said the country is “engaging in negative selection.”

“We are mainly attracting very low-skilled labor, while we ourselves are losing highly qualified specialists,” he said, urging Moscow to actively attract qualified professionals from abroad and provide incentives for foreign graduates to stay in Russia.

“It’s a matter of national security and the survival of the country,” he said.

Russia’s demographic pressure is already distorting its economy, keeping unemployment low at around 2.1% and fueling inflationary pressures through rapid wage growth.

Businesses are already struggling to cope. Employers are increasingly hiring retirees and teenagers to fill staff shortages in an economy distorted by war spending.

Russian President Vladimir Putin has made population growth a national priority, calling it “ethnic survival” and urging women to have up to eight children.

In 2024, births in Russia fell to 1.22 million – the lowest since 1999 – while deaths increased to 1.82 million, according to government data.