The war in Ukraine is the only thing keeping the Russian economy afloat – BI

Currently, Russia’s huge military budget supports its declining economy / Illustration by REUTERSThe invasion of Ukraine is the only thing that prevents Russia from slipping into recession. Economists interviewed by Business Insider expressed this opinion.

In particular, as explained by Jay Zagorski, an economist and professor of markets at Boston University’s Questrom School of Business, Russia’s massive military budget is currently supporting its declining economy. However, this is a temporary solution to Russia’s growing economic problems, including inflation, long-term currency and budget problems.

“The Russian economy is currently supported by large government spending, so there will be no slowdown in any sector of the economy from which the Russian government buys goods,” Zagorsky said, pointing to the Kremlin’s purchases of military uniforms, shoes, ammunition and food as part of military operations against Ukraine . “So if there hadn’t been a war, oh yeah, I think there would have been a recession right away.”

According to Yury Horodnychenko, an economist and professor at the University of California in Berkeley, while the war continues, the time of decline in the Russian economy remains uncertain. Next year, the Russian Federation will allocate a record 13.2 trillion rubles to the defense budget, which should help stimulate its economy. However, such monstrous costs cannot last forever, says Horodnychenko.

“With government money, they can keep the economy afloat, but at some point the government will run out of money and have to shut down and a recession will begin,” he added.

Economic problems of MoscowInflation – one of the biggest problems, says Zahorsky. According to the official statistical service of Russia, in August consumer prices increased by 9% compared to the previous year.

However, Zagorsky suggested that inflation could be much higher than this, citing the Soviet Union’s practice of understating inflation during the Cold War.

Gorodnychenko says that the Russian economy is also suffering from currency problemspointing to Russia’s limited access to the dollar due to Western sanctions. This limits Moscow’s ability to trade, especially in oil and crude products, which make up a significant portion of its total revenues.

Russia has turned to alternative currencies such as the Chinese yuan, but Chinese firms are increasingly reluctant to do business with Russia for fear of falling under secondary sanctions from the US and other Western powers.

at the same time, neither Zahorskyi nor Horodnychenko could say when exactly a recession might begin in Russia. In the end, it will depend on how long the war in Ukraine will last and, accordingly, the costs of it.

Russia’s economy is approaching collapseIn April, Business Insider predicted that Russia’s economic power could last another year and a half before it begins to wane.

According to experts, Russia is dealing with a political “trilemma” – three big problems in the third year of the war. For Vladimir Putin, the problem boils down to financing the Russian army, maintaining the standard of living of Russian citizens and preserving the stability of the economy. These three goals are becoming increasingly difficult for Russia to achieve.

Bloomberg also predicted that Russia’s economy, which is suffering from the huge costs of the war against Ukraine, could slow down sharply. The main reason for such changes is sanctions against key sectors.

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