Russia’s economy is so driven by the war in Ukraine that it can’t afford to win or lose, economist says

• The Russian economy cannot afford to win or lose the war in Ukraine, an economist says.

• This is because Russia cannot afford the costs of rebuilding and securing Ukraine.

• According to Renaud Foucart, the costs of restoring one’s own country are already “enormous”.

According to a European economist, the Russian economy is completely dominated by the war in Ukraine, so much so that Moscow cannot afford to win or lose the war.

Renaud Foucart, senior lecturer in economics at Lancaster University, pointed out the dire economic situation Russia finds itself in as the war in Ukraine enters its second year.

Russia’s GDP grew at an annualized rate of 5.5% in the third quarter of 2023, according to Russian government data. But most of that growth is being fueled by the country’s monstrous military spending, Foucart said, with the Kremlin planning to spend a record 36.6 trillion rubles, or $386 billion, on defense this year.

“Military payments, munitions, tanks, aircraft and compensation for dead and wounded soldiers all contribute to GDP figures. Put simply, the war on Ukraine is now the main driver of Russia’s economic growth,” Foucart said this week in an opinion piece for The Conversation.

Other parts of the Russian economy are suffering from the ongoing war. Moscow is facing a severe labor shortage, as young professionals flee the country or are swept up in the conflict. By one estimate, the country now has a shortage of about 5 million workers, causing wages to soar.

Inflation is high at 7.4% — nearly double the central bank’s 4% target. Meanwhile, direct investment in the country has collapsed, falling by about $8.7 billion in the first three quarters of 2023, according to data from Russia’s central bank.

All of this puts the Kremlin in a difficult position, regardless of the outcome of the war in Ukraine. Even if Russia wins, it cannot afford to rebuild and secure Ukraine, given the financial costs and the impact of remaining isolated from the rest of the global market.

Western countries have been avoiding trade with Russia since it invaded Ukraine in 2022, a move economists say could seriously harm Russia’s long-term economic growth.

As long as Russia remains isolated, Russia’s “best hope” is to become “completely dependent” on China, one of its few remaining strategic allies, Foucart said.

Meanwhile, the cost of rebuilding the country itself is already “huge,” he added, pointing to problems such as Russia’s broken infrastructure and social unrest.

The story continues

“A prolonged stalemate may be the only solution for Russia to avoid total economic collapse,” Foucart wrote. “The Russian regime has no incentive to end the war and to deal with that kind of economic reality. It can therefore afford neither to win the war nor to lose it. Its economy is now entirely geared to continuing a long and increasingly deadly conflict.”

Other economists have warned of trouble for Russia because of the toll of the war in Ukraine. The Russian economy will suffer significantly more degradation, a London think tank warned recently, despite talk of Russia’s resilience in the face of Western sanctions.

This story was originally published in February 2024.

Read the original article on Business Insider