Russia’s economy is on the brink of conditions similar to those of the Soviet Union

Despite forecasted GDP growth, Russia suffers from high inflation and revenue shortfalls. The future of war financing remains uncertain.

MOSCOW – Within a few years, Russia’s economy had become a war economy. It is now completely dependent on arms production and trade China and the oil and gas business, which is still looking for buyers despite Western sanctions. Despite the World Bank forecasting gross domestic product (GDP) growth of 3.2 percent this year, Russia’s economic situation is very happy. The country is facing bigger challenges than ever, with high inflation, fears of confiscation and labor shortages due to forced conscription.

Russia’s economy is losing importance: inflation is high

Newsweek It suggests that the Russian economy will contract steadily starting in 2025 and then through the end of the decade. According to the International Monetary Fund (IMF), next year’s GDP will be 1.8 percent. A war economy is not a sustainable economy, and as long as President Vladimir Putin continues his bloody war in Ukraine, economic dependence on the conflict will continue to increase. Despite the Russian central bank’s tough interest rate hikes last year, the inflation rate has remained at eight percent. The central bank expects inflation to average 4.8 percent through 2024.

How Putin plans to finance his war beyond 2024 remains uncertain. Russian economist Igor Lipsis said in an interview in early April Frankfurter Allgemeine Zeitung (FAZ): “It seems to me and other economists that Russia will be able to finance the war this year as well, but after that it is not clear “where the money will come from”.

The state’s sources of income are dwindling more and more, and that is only now really becoming apparent. Gazprom is an example of this, posting losses for the first time in its history in 2023. Instead, the state incurs more and more debt, the repayment of which will put a heavy burden on the budget in the future. According to experts, the current shortage of skilled workers is a major problem, which is only exacerbated by mobilization in Russia. “The government is expanding the arms industry, which is taking over the healthy cells of the civilian economy like a cancer,” says Igor Lipsis.

Putin will do everything to win the war against Ukraine

Lipsis expects Putin and his establishment to do everything they can to continue raising money for the war in Ukraine. According to Lipsis, pensions are already not adjusted to account for the high inflation rate.

Vasily Ostrov from the Vienna Institute for International Economic Studies (WIIW) shares this assessment. He believes that Putin will always find a way to continue the war. “Putin won’t run out of money for war,” a Russia expert said last week. “For the Russian economy, the question is what comes after the war, because it is now completely dependent on it,” Astrov added.

Due to a shortage of skilled workers and a state-controlled war economy, real wages in Russia rose nearly eight percent last year, while private consumption rose 6.5 percent, according to a report by a firm specializing in Eastern Europe.

Russia’s Economy: Putin Accepts Sacrifices

However, Igor Lipsis does not believe that anything will change in Putin’s power if the economic problems are more noticeable among the people. “Any deterioration in economic conditions will not lead to mass protests. Like in the Soviet Union, food can only be bought in stamps again, I think it will soon be possible and people will put up with it. People are starving, pensioners are simply dying on cheap medicine. “The political situation will not change,” he said He did.