Russia's economic strains intensify under war‑driven policies
The Russian economy, shifted to a war footing and inflated by trillions of rubles, is approaching the depletion of its reserves. According to the International Monetary Fund's forecasts, GDP growth is expected to slow to 1.3% in 2025, widening the gap with China and India, reports "Rzeczpospolita".
As reported by "Rzeczpospolita," the Russian economy, dominated by military sector funding, is on the brink of exhaustion, alarming economists from the International Monetary Fund. After the aggression in Ukraine, Russia nearly entirely shifted its economy to a wartime mode.
Over 20 trillion rubles ($245 billion CAD) have already been spent on national defence, supporting the military industry, and paying bonuses to contract soldiers. However, as Bloomberg Economics expert Alexander Isakov notes, the effect of these fiscal stimuli has peaked, and stagnation has begun to encompass construction and freight transport.
The IMF forecasts that in 2025, Russia's GDP will grow by only 1.3%, and by 2029, it will decrease to 1.2%. This phenomenon is due to a decrease in private consumption, lack of investment, and a growing labour deficit. The Kremlin admits that there is a shortage of about 2.5 million workers in the labour market, but independent economists estimate that the actual gap is as much as 5 million, caused by mobilization and the mass escape of men abroad, reports "Rzeczpospolita".
Russian GDP lagging behind China and India
Russia is also losing ground to other countries, including BRICS members such as China and India. In 2025, Russia's GDP is expected to grow one-third slower than in developed countries and three times slower than in developing countries. Forecasts indicate that next year, Russian GDP will be 3.5 times slower compared to China and five times slower compared to India.
As noted by "Rzeczpospolita", an additional blow to the Russian economy is the anticipated drop in oil prices, a key resource for the country's budget. Prices are expected to fall from the current $81.29 USD ($111 CAD) per barrel to $72.84 USD ($99 CAD) in 2025. The Russian economy still relies on the export of energy resources, and the state budget is based on assumed average oil prices, which will further hinder development in the coming years.
According to the Emerging Markets Institute of the Bank of Finland (BOFIT), the production capacity utilization in Russia currently exceeds 80%, which has not occurred in the country's modern history. However, the Russian government is not investing in the modernization and development of civilian sectors, leading to even greater stagnation. Experts emphasize that in the long term, investments in military production and the dismantling of market institutions can weaken the Russian economy.
As noted by Konstantin Sonin, a professor at the University of Chicago, these short-term actions may strengthen Putin's position. Still, in the long term, they become a "time bomb" for future generations. Although the current war has not made the lives of Russians significantly worse, its long-term effects could be catastrophic for Russia's economic development, it reads.
