As of: February 12, 2024, 5:23 a.m
By: Bettina Menzel
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Press
Split
The Russian GDP is also growing thanks to increasing military spending.
There can be no talk of sustainability here.
© Mikhail Metzel/imago/Symbolbild
Russia's gross domestic product is growing - also thanks to increasing military spending.
That's not sustainable.
An end to the war would also mean a collapse of Russia's economy.
Moscow – Russian President Vladimir Putin is preparing his country for a long war in Ukraine – and has already converted Russia to a war economy.
Most recently, the Kremlin chief ordered a 70 percent increase in Russian military spending, as NATO Secretary General Jens Stoltenberg confirmed on Sunday (February 11).
This is bearing fruit on the battlefield: While Kiev is suffering from a shortage of ammunition, Moscow has regained dominance in artillery.
But dependence on military investments is becoming a problem for the Russian economy.
One expert sees Moscow repeating the mistakes of the past.
Ukraine war contributes to Russian economic growth through higher military spending
Around 40 percent of Russian government revenue comes from oil and gas sales.
Recently, the Kremlin had to accept a significant loss here.
The price of Russian crude oil fell by around 40 percent in 2023 compared to the previous year.
In addition, the European Union (EU) is currently planning its 13th sanctions package against Moscow, particularly targeting companies that contribute to Russia's military and technological strengthening or to the development of its defense and security sector, it said.
However, Western companies are still active in Russia and are pouring a lot of money into Putin's state coffers.
In addition, the Kremlin boss has apparently found ways to circumvent the EU sanctions.
For example, through special trade routes for Russian rough diamonds or through the import of sanctioned semiconductors from household appliances from allied countries.
The Russian economy is not doing badly at the moment, on the contrary: after a decline in the first year of the war, the gross domestic product (GDP) has recently climbed again: growth was 3.6 percent in 2023, as the Russian statistics agency Rosstat announced last Wednesday.
Experts attribute this primarily to increased government spending on armaments and the military.
According to the US think tank
Institute for the Study of War,
Russia now spends 40 percent of its gross domestic product on the war in Ukraine.
However, this is not sustainable.
Despite growth in 2023: The Russian economy has these problems
The Russian labor market has a problem: there is a shortage of personnel.
In the past five years, median wages have doubled.
The Moscow management consultancy Yakov and Partners recently calculated that the labor deficit will be between two and four million people by 2030.
A labor shortage of this magnitude poses risks for the economy, companies and society as a whole, warn the authors of the study.
The lack of staff could reduce potential GDP growth by one to two percent per year and increase the inflation rate to 10 percent, the Yakov report continued.
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Inflation in Russia was already at 7.4 percent in 2023, which is comparatively high.
For the population, the price increase means a reduction in purchasing power.
The Russian central bank therefore set the key interest rate to 16 percent in December last year, thereby alleviating the drastic devaluation of the ruble at times.
Maxim Oreshkin, President Vladimir Putin's economic adviser, stressed last year that the Kremlin wanted to see a strong ruble.
Due to the decline in the national currency in 2023, imports had become more expensive.
Why Russian economic growth is not sustainable
Despite the current comparatively positive situation, the Russian economy faces long-term challenges.
Observers speak of an “overheating cycle”.
Accordingly, the economy's dependence on military investments will become even more severe this year.
Moscow is repeating the mistakes of the past, believes Michael Rochlitz, a professor of Russian economics at the University of Oxford.
The Soviet Union bloated ministries and created thousands of administrative jobs.
“There were many people who depended on the war industry continuing,” the expert told
n-tv
.
These lobby groups are now being rebuilt through massive support for the war industry.
In fear of becoming unemployed, these people would then resist ending the war.
That is why economic growth based on war is not sustainable.
“In the end, the Soviet Union failed precisely because of this,” Rochlitz continued.
The Russian economy “collapses if the war ends,” the expert said in an interview with
n-tv
.
Meanwhile, Russian authorities expect the economy to continue growing in 2024 - albeit more slowly than last year.