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The “main engine” of Putin's Russian economy is the war in Ukraine. The damage caused by the “war economy” is mounting – and it is already leaving its mark.
Moscow – Russia is doomed to eternal war due to the economic situation. Vladimir Putin's government will not be able to resist economic pressure for long. Russia's economy is now so dependent on the war in Ukraine that Putin can neither afford to win nor lose the war, economists argue.
Putin's economy condemned to eternal war against Ukraine
An analysis of the latest economic data shows: After a decline in 2022, gross domestic product (GDP) in Russia is expected to have increased by 3.6% in 2023. Russia's state statistics office published figures on this subject in mid-February.
But the good numbers are deceiving and are seen as an attempt by Putin to cover up the problems of the Russian economy. Russian economic growth in the war in Ukraine is mainly due to high government spending. “Military salaries, ammunition, tanks, aircraft and compensation for killed and injured soldiers contribute to GDP figures. Simply put, the war against Ukraine is now the main driver of Russian economic growth, says economist Renaud Foucart in an opinion piece for The Conversation.
Even a victory could cost Putin dearly in the Ukraine war. (File photo) © Evgenia Novozhenina/dpa
British economist Roger Bootle argues similarly to Foucart in an article in The Telegraph. Additional spending triggered by a war can boost the economy. This is what happened in Germany in the 1930s. War production also increased enormously in the USA. But this kind of gain is doomed to failure in the long run.
The Russian economy is growing thanks to military spending – but other areas are suffering
Meanwhile, other areas of the Russian economy are suffering from the ongoing war: Russia faces major challenges due to stubborn inflation and a shortage of skilled workers. Inflation is high, at 7.4 percent – almost double the central bank's four percent target. Meanwhile, direct investment in the country has collapsed, according to Business Insider, falling by 8.7 billion dollars (around eight billion euros) in the first three quarters of 2023, according to the Russian Central Bank.
The labor shortage apparently will not improve in 2024 either. In 2022 and 2023 alone, the labor shortage in Russia increased significantly. As the Russian newspaper Izvestia reports, citing the Institute of Economics of the Russian Academy of Sciences, there are currently 4.8 million people missing. The development will likely last until 2024. According to study author Nikolai Achapkin, drivers and shop workers are particularly in demand.
Losses for Putin – Russia has to count on help from allies, but they don't want to
Added to this were troop losses, which, according to Bootle, are estimated at more than 350,000 fallen and wounded Russians. War-related emigration is unofficially estimated at over one million. This corresponds to a total of about one percent of the Russian population.
Economic crises are leading Putin to increasingly demand help from third countries and allies. But Western sanctions have also caused unrest among them. Putin's allies, considered loyal business partners, want to stop his business. Chinese banks want to end business with Russian customers and banks in the United Arab Emirates (UAE) are also turning their backs on Putin for fear of sanctions.
Putin will probably never win the war against Ukraine
Despite the economic situation, Putin wants to plan record military spending for 2024. These should represent six percent of GDP. However, the question arises of how long Putin can continue to manage his economy before it collapses. Even if Russia wins the war, Putin will probably not be able to bear the costs of reconstruction. “The expected costs of rebuilding the occupied territory are already enormous,” writes Foucart. Therefore, it could take a long time for the Russian economy to recover – if at all. (booh)