"Typically, this is shown by a drop in confidence. According to statistics collected in Russia, Russian companies' confidence indicators have recently begun to fall significantly," said Luikmel, head of the monetary policy and external economy subdivision at the Bank of Estonia.

"While the universal reason used to be primarily a shortage of labour, now the financial situation — that is, companies' financing conditions — is increasingly starting to affect everything. The state was able to influence these relatively successfully through oil revenues and subsidies, as well as through state orders. These prospects are no longer as rosy as they were a year ago," he added.

Luikmel said that while in spring Russian authorities forecast one‑percent economic growth for this year, current data suggest 0.6 percent growth, which for Russia already means stagnation.

"If it falls to that level, then such slow economic growth was last seen around 2016. And at that time, the relatively unsuccessful annexation of Crimea had ended, primarily due to the economic sanctions of the time, which coincided with a relatively low oil price," he explained.

Luikmel noted that while in previous years the economy was supported by growth in military spending, last year it was already visible that the growth of military expenditures — which make up more than one‑third of federal budget spending — had stopped.

"For this year, about 160 billion dollars in military spending was expected, which is almost the same as last year or even slightly less. So one may speculate that perhaps the Russian administration thought that such military efforts were no longer needed to the same extent, but on the other hand, opportunities also became more limited," he said.

He also highlighted fuel shortages caused by Ukraine's successful attacks on Russia's oil infrastructure. The queues at Russian petrol stations, affecting about one‑third of Russia's population, bring the reality of the war home to ordinary Russians, he noted.

"On the other hand, a long‑term growth‑limiting factor is the shortage of people — two‑percent unemployment does not indicate an economic boom, but if it is accompanied by economic growth below 1 percent and likely inflation above 6 percent, then we can safely say that this is stagflationary and a very uncomfortable scenario also for those who must decide on interest rates," Luikmel added.

The Bank of Estonia representative noted that Russia's economy has not been helped much by the more favourable situation at the beginning of the year due to U.S. actions, when the war launched against Iran raised oil prices and the U.S. also halted sanctions on the oil fleet.

"It is true that in April–May Russia likely earned perhaps even one‑third to one‑half more per month from crude oil sales than last year. But domestic supplies of liquid fuel have taken an additional hit. One can say that Russia's oil refineries, diesel and gasoline plants are at a standstill, and this is largely due to Ukrainian drone attacks," he said.

Luikmel praised Western sanctions on Russia, which he said are quite effective.

"A lot has been done regarding sanctions, and also this morning's [European Union] decision to freeze Russia's oil price cap — which would have risen because the market price has moved — is a very correct step in that direction," he said. "Sanctions are being considered more broadly, for example by restricting companies that service the infrastructure used to transfer Russian oil from ship to ship. So in fact, we can say that we are enforcing sanctions relatively effectively, even though their implementation takes time."

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