Russia economy meltdown as central bank reveals GDP tanking

Russia's central bank has warned of the country's shrinking GDP. (Image: Getty)

The Russian economy has been dealth yet another blow as the central bank slashed interest rates after its own data revealed a shrinking GDP. The Bank of Russia cut its benchmark interest rate Friday by one percentage point to 17% as growth slows and spending on the war against Ukraine increases the budget deficit.

It previously raised its key rate as high as 21% to combat inflation, but has begun to retreat amid complaints from business leaders and legislators about their impact on economic activity. Inflation eased in July and August, but now remains at 8.2%. The central bank warned that "inflation expectations have not changed considerably in recent months". It said: "In general, they remain elevated. This may impede a sustainable slowdown in inflation."

The Bank of Russia lowered benchmark rates on Friday. (Image: Getty)

This comes after a report by the Bank of Russia revealed that GDP shrank in the first and second quarters of this year, meaning it fits the definition of a technical recession.

Russian Economy Minister Maxim Reshetnikov also warned in June that the country was "on the brink" of a recession.

Despite the damning evidence, central bank governor Elvira Nabiullina maintains that Russia is not in a recession. She claimed other factors such as employment, real income, consumer demand, and industrial production were stronger.

She said: "We do indeed have a cooling of the economy. This is natural when coming out of overheating, when production capacity must catch up with demand."

Year over year growth also slowed to 1.1% in the second quarter of this year, from 1.4% in the first quarter and from 4.5% at the end of last year.

The deficit increased to 4.9 trillion rubles (£43 billion) in the January-July period, up from 1.1 trillion rubles (£9 billion) the year before.

Spending was 129% of the planned amount, according to the Kyiv School of Economics, which tracks the Russian economy and oil revenues.

Meanwhile oil and gas revenues fell 19% compared with the year earlier period, in part due to slack global oil prices.