Russia’s economy is staring at “near stagnation,” according to Anders Åslund.
The Swedish economist thinks sanctions are biting into economic growth.
Moscow may not be able to keep its invasion of Ukraine going for much longer, he said.
Russia’s economy is coming closer to a near-stop — and Moscow looks bound to run out of resources to fund its war against Ukraine.
That’s according to Anders Åslund, a Swedish economist who says Russia’s economy is taking a bigger hit from Western sanctions than some believe.
While Putin has blown off the impact of Western restrictions, sanctions could be knocking off as much as 3% of Russia’s GDP each year, Åslund estimated — the equivalent of $56.4 billion a year, given Russia’s current dollar GDP of $1.88 trillion in 2023.
“Contrary to what the Kremlin would like others to believe, time is not on Russia’s side,” Åslund wrote in an op-ed for Project Syndicate on Tuesday. “My own view is that the current sanctions regime shaves off 2-3% of GDP each year, condemning Russia to near stagnation. Moreover, the situation will get only worse for Putin, perhaps even impeding this campaign of aggression against Ukraine.”
Russia’s GDP technically grew 3.6% last year, with another 3.2% real GDP growth expected in 2024, according to estimates from the International Monetary Fund. But economists have noted that much of Russia’s growth has been fueled by aggressive government spending on the war, while longer-term indicators of economic health have soured.
Labor productivity, for instance, dropped more than 3% last year, thanks partly to an ongoing brain drain in the nation’s workforce.
Russia’s energy business, which supplies a major portion of its total revenue is also struggling. Moscow’s oil and gas revenue dropped by nearly a quarter in 2023, thanks to tumbling oil prices and sanctions targeting the nation’s energy trade.
Inflation, meanwhile, is roaring. Consumer prices rose 8.5% year-per-year the week of September 17, according to official figures from Russia’s Economic Development Ministry. It’s likely prices are running even hotter than what those figures suggest, Åslund said, pointing to a long history of Russia understating inflation numbers during the time of the Soviet Union.
“The only sectors of the Russian economy that are growing are the military and related infrastructure, where state-owned companies sell to the state at (probably inflated) administered prices. The rest of the economy is flat at best,” Åslund wrote.
Russia is also in a tough spot when it comes to financing the war against Ukraine. The nation has had difficulty borrowing cash from other countries after it was shut out of SWIFT, the global financial communications system, which means that the economy is primarily feeding off tax revenues and reserves.
Russia has depleted a large chunk of its National Wealth Fund, which had around $56 billion left in liquid assets at the start of June, according to data from Russia’s finance ministry.
While Russia has moved to raise personal and corporate taxes, that’s unlikely to make a huge difference in the grand scheme of the Kremlin’s finances, Åslund said, as there aren’t many bond buyers keen to pick up Russia’s debt.
“Including all the hidden costs, Russia will probably spend about $190 billion, or 10% of GDP, on the war this year, and that figure presumably represents the peak, given the constraints imposed by Western financial sanctions,” he added, suggesting Russia could only sustain its war efforts for a limited amount of time.
“Whenever Russia can no longer finance a budget deficit, it will have to cut public expenditures, and its non-military outlays have already been pared to the bone.”
Economists have warned that a dark and uncertain future is looming for Russia, with the mounting costs of the war cannibalizing key parts of its economy. At this point, the Kremlin’s war spending is likely the only thing preventing the nation from slipping into an immediate recession, economists told Business Insider.
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