Russia Faces Economic Struggles as Key Industries Fight for Survival

The Russian economy is currently grappling with significant challenges, exacerbated by ongoing sanctions and the prolonged conflict in Ukraine. In response, President Vladimir Putin is compelled to implement urgent measures to prevent a looming economic crisis. Surprisingly, the war in Ukraine is not the primary concern affecting Russia's economic stability.

To address these pressing issues, the Russian government has reactivated a special commission originally established in 2020 to ensure economic sustainability. On February 11, 2025, Deputy Prime Minister Alexander Novak announced that this commission resumed its activities in December 2024, focusing on nine critical economic sectors and over 2,000 enterprises that are under severe financial strain.

Novak highlighted several key risks facing the economy, including a decline in investment activity, reduced profitability among companies, worsening financial indicators, and increasing interest burdens relative to corporate revenues. These factors pose a threat to the stability of vital industries within Putin's economic framework.

Particularly alarming is the state of the coal industry, which teeters on the brink of widespread bankruptcy. The prominent Russian newspaper Kommersant reported that the government is developing emergency plans in anticipation of a potential mass insolvency among coal mining firms. Several companies in this sector have already shut down operations due to plunging sales.

In an effort to mitigate the crisis, both the Ministry of Economic Development and the Federal Tax Service have been tasked with formulating rescue strategies for struggling mining enterprises. Reports indicate that the state-owned Vnesheconombank may soon take control of distressed assets, while many coal companies urgently seek immediate financial assistance.

The challenges facing the Russian economy extend beyond coal. The Moscow Times has indicated that a support plan for the metallurgy sector is being devised, as this industry has also suffered from sanctions, lost export markets, and reduced production capacity. In late January, Andrei Savyelyev, Deputy Director of the Metallurgy Department at the Ministry of Industry and Trade, expressed a bleak outlook, stating that the favorable conditions of the past are now over.

The forestry sector is similarly struggling. Like the coal industry, it has been adversely affected by the European embargo and has failed to find alternative buyers in Asia, resulting in a one-third drop in wood exports. The agricultural sector is additionally contending with droughts and crop failures, with wheat production declining by 16% in 2024, and yields for maize, barley, and sugar beets plummeting by nearly 20%.

The economic situation in Russia is worsening, a reality that even Putin can no longer ignore. Novak described the current environment to Interfax as a phase of 'controlled cooling' for the economy, with the dual goals of curbing inflation and ensuring economic growth. He acknowledged that the pace of economic growth has slowed, particularly affecting industries reliant on domestic consumer demand and exports.

To combat rising inflation, a restrictive monetary policy has been adopted. However, despite several interest rate hikes by the Russian Central Bank, these measures have largely been ineffective, with the inflation rate remaining above nine percent--significantly higher than the target of four percent. This situation is causing concern not only among economic experts but also within the general populace.

Recent polling by the respected Levada Center reveals that inflation is now a more pressing worry for the Russian public than the conflict in Ukraine. When asked about the most urgent societal issues, 63% of respondents cited 'rising prices', while only 35% mentioned the 'special military operation' in Ukraine, the term used in Russia to refer to the ongoing conflict. These results underscore that economic difficulties have become a greater threat to everyday life in Russia than the extended conflict with Ukraine.

As the government under Putin confronts these daunting challenges, it faces the formidable task of implementing effective measures to stabilize the economy and regain public trust.