Russian economy under strain: Inflation and labor shortage persist
The Russian economy is facing serious challenges. Inflation is high, interest rates are elevated, and there is an ongoing labour force deficit. Three years of war with Ukraine have profoundly impacted Moscow's economic landscape.
The Russian economy, three years after the start of the invasion of Ukraine, is grappling with significant issues. Inflation, a shortage of labour, and high interest rates remain the main challenges for the country. While military spending contributes to GDP growth, it does not lead to long-term development.
According to Rosstat data, Russia's GDP in 2024 increased by 4.1%, which Prime Minister Mikhail Mishustin described as a "historic record." However, as the independent portal Meduza notes, this growth is illusory because it does not account for inflation. Military spending accounted for almost one-third of the federal budget, thus contributing to GDP growth.
The Russian economy. Civil sector problems
Expert Iwona Wiśniewska from the Polish Center for Eastern Studies emphasizes that the civilian sector is not keeping up with market demands. Production outside the military sector is stagnant, and private investments are nearly at a standstill. High interest rates, reaching 21%, limit investment opportunities and further hinder economic development.
Russia is struggling with a labour shortage. Officially, it amounts to 2 million people, but it could be as much as 3 million more. Companies are raising wages to attract workers, but this does not fully solve the problem.
Retirees and public sector workers are the most affected in this situation. Their incomes are not keeping pace with the rising cost of living.
Sanctions imposed on Russia by the West make it difficult to access Western goods and technologies. Russians are increasingly turning to Chinese products. Despite sanctions, Russia continues to find ways to bypass them.
Iwona Wiśniewska from the Center for Eastern Studies told PAP that the Russian economy is influenced by the activity of military plants. "The government pays them huge amounts of money, creating demand in the economy. However, the civilian sector is unable to meet the needs of consumers," Wiśniewska emphasized.
However, as the independent Russian portal Meduza pointed out, nominal GDP does not consider inflation and does not reflect the real economic situation in the country. Last year, state spending on the military was unprecedented for post-Soviet Russia and accounted for almost one-third of the federal budget.
The Central Bank of the Russian Federation is unable to manage inflation effectively, and high interest rates limit investment opportunities. Meduza pointed out that GDP growth during wartime is not unusual; a similar trend has been observed in other countries during armed conflicts.
