Russian economy teeters on the brink of collapse amid war efforts
The Russian economy, inflated by trillions of dollars spent on state defence orders and payments to soldiers fighting in Ukraine, is increasingly overheating. Putin's war machine operates around the clock, yet GDP is declining. An expert says that the end of the war could cause a "total collapse" of the economy.
As reported by Rosstat, the Russian economy grew by 3 percent year over year in June, although it was 1.5 percent higher a month earlier. In February, this level reached 7.6 percent.
The Russian economy is overheating
After two years of war and thousands of Western sanctions, industry slowed to 1.9 percent, three times less than the previous month and winter (5.3 percent in May and 5.6 percent in the first quarter).
Amid payment problems affecting imports to Russia, wholesale trade growth has practically ground to a halt: in June, it increased by just 1.9 percent year-on-year, although in May this rate rose by 11.1 percent and by 16-20 percent or more at the end of last year.
Rosbank analysts note that economic activity has slowed in almost all sectors. The growth rate in construction has fallen nearly sixfold. Retail turnover dynamics have dropped to the lowest level in a year and a half, while goods work in agriculture and transport has started to decline—by 0.3 and 0.8 percent, respectively.
The economy on the brink of war has hit a dead end: sending a million citizens to war has caused an unprecedented staff shortage, and the defence industry and import substitution boom has ‘absorbed’ all available factory and plant resources. Central Bank President Elvira Nabiullina said last week that the country's labour reserves and production capacities are practically exhausted.
According to her estimates, the economy's overheating has reached a record level in the past 16 years, which could result in stagflation and a "deep recession."
According to the Central Bank's forecasts, next year the Russian economy could slow down to almost zero. The dynamics of investments and private consumption may also drop to zero. Additionally, foreign deliveries to Russia will continue to decline – they will amount to CAD 403 billion this year, which is CAD 17 billion less than this year, and nearly CAD 70 billion less than before the annexation of Crimea (2014).
"Total collapse" of the economy
- Shifting the economy to war mode has led the Kremlin into a dead end: almost all economic growth is driven by the defence industry, and the end of the war could cause a "total collapse" of the economy - notes Renaud Foucard, a professor at Lancaster University, quoted by "The Moscow Times".
- The Russian regime has no incentive to end the war and deal with that kind of economic reality. So it cannot afford to win the war, nor can it afford to lose it. Its economy is now entirely geared towards continuing a long and ever deadlier conflict – Foucard warns.
