Russia’s Economy Tied to War in Ukraine, Economist Warns
Russia’s economy is facing a dire situation as its war in Ukraine enters its second year, according to Renaud Foucart, a senior economics lecturer at Lancaster University. The economist argues that Russia’s economy is so intertwined with the war that it cannot afford to either win or lose.
Foucart points out that Russia’s GDP grew by 5.5% year-over-year in the third quarter of 2023, but most of this growth is driven by the nation’s massive military spending. The Kremlin plans to spend a record 36.6 trillion rubles, or $386 billion, on defense this year. Military expenses such as pay, ammunition, tanks, planes, and compensation for soldiers contribute significantly to Russia’s GDP figures. In other words, the war against Ukraine has become the main driver of Russia’s economic growth.
However, while military spending may be boosting the GDP, other sectors of Russia’s economy are suffering. Moscow is experiencing a severe labor shortage as young professionals flee the country or get involved in the conflict. It is estimated that Russia is short around 5 million workers, leading to soaring wages. Additionally, inflation is high at 7.4%, nearly double the central bank’s target of 4%. Direct investment in the country has also plummeted, falling approximately $8.7 billion in the first three quarters of 2023.
These economic challenges put the Kremlin in a difficult position, regardless of the war’s outcome. Even if Russia were to win, it would struggle to rebuild and secure Ukraine due to the financial costs and the impact of remaining isolated from the global market. Western nations have imposed trade sanctions on Russia since its invasion of Ukraine in 2022, which could severely hinder Russia’s long-term economic growth.
Foucart suggests that Russia’s “best hope” is to become “entirely dependent” on China, one of its few remaining strategic allies. However, rebuilding Russia itself is already a massive undertaking, with issues such as broken infrastructure and social unrest plaguing the nation. The economist argues that a protracted stalemate might be the only solution for Russia to avoid total economic collapse. The Russian regime has no incentive to end the war and face the economic reality, so it cannot afford to win or lose. Its economy is now entirely geared towards continuing a long and increasingly deadly conflict.
Other economists have also warned of trouble ahead for Russia. Despite talk of Russia’s resilience in the face of Western sanctions, a London-based think tank predicts significant degradation for Russia’s economy in the future.
In conclusion, Russia’s economy is deeply entangled with its war in Ukraine. While military spending boosts GDP growth, other sectors suffer, and the nation faces a labor shortage, high inflation, and a decline in direct investment. The economic costs of rebuilding and securing Ukraine, combined with Russia’s isolation from the global market, make it difficult for Russia to afford either victory or defeat. The country’s best hope may lie in becoming dependent on China, but even rebuilding its own nation poses significant challenges. As the war drags on, Russia’s economy faces an uncertain future.
