Russia’s economy grew rapidly in 2023, thanks mainly to militarization. And that poses enormous risks for the future. — Meduza

The paper said international sanctions failed to prevent Russia’s economy from recovering to near pre-war levels earlier this year. Latest statistics From the country’s Federal National Statistical Office.Western cuisine news organization and Analyst I admit that now. Vladimir Putin is dancing on John McCain’s bones, declare Russia is not a “gas station”, says presidential economic advisor Maxim Oreshkin claim that Europe is suffering more from sanctions against Moscow than from Russia itself. But it’s not all sunshine and lollipops. Millions of Russians are paying the price for a surge in military production as inflation reaches 7.5%. While there are signs that the economy is overheating, a slowdown or even recession is expected in 2024.

After the invasion of Ukraine in February 2022, Russia fell into recession due to Western sanctions, but the economy has recovered, at least in certain indicators, and even a recession. Ended Just 10 months later, in August, according to the Center for Macroeconomic Analysis and Short-Term Forecasting. Although TsMAKP is perhaps not the most objective think tank (its director, Dmitry Belosov, is the younger brother of First Deputy Prime Minister Andrei Belosov), Russia’s gross domestic product will increase by 5.5% in the third quarter of 2023, and by 2023 It increased by 3.2% in the third quarter of the year. First 10 months of the year. Gross domestic product (GDP) in 2023 increased by 1.1% compared to the same period in 2021, before the full-scale invasion of Ukraine and the beginning of potentially crippling sanctions by the West.

Russia exceeded the expectations of the Ministry of Economic Development and the central bank, which in the spring predicted gross domestic product (GDP) growth would not exceed 2% this year.Even analysts now bloomberg economics The growth rate in 2023 is expected to exceed 3%.

This week, President Vladimir Putin triumphantly declared that Russia’s annual GDP growth rate would exceed 3.5 percent. “Every smart person would agree that this is a good indicator for the Russian economy,” the president explained, adding that only 2% of the country’s growth comes from resource extraction.

While this year’s surge in economic output is noteworthy, these indicators capture the country’s recovery from a downturn like 2021 following the coronavirus pandemic. In other words, Russia’s soaring GDP is not evidence of the sustainable development that Putin claims.

From reconstruction through subsidies to economic overheating

Although Russia’s manufacturing production is growing rapidly, funds from the oil and gas industry still accounted for about one-third of all federal budget revenues from January to October 2023. True, oil and gas production fell by 2% and 5%, respectively, but this was a decline. This is primarily due to the supply reduction obligations Russia accepted in its agreement with OPEC. According to former central bank deputy chairman Sergei Alexashenko, Russia’s primitive dependence on oil and gas exports actually shielded the Russian economy from international sanctions and helped the Kremlin sustain the Ukraine war. It is said that there is

Despite the sharp increase in allocations to military production, the federal deficit in 2023 is expected to be just 1% of GDP, half of what officials originally estimated. At the same time, annual spending on “defense” and “national security” exceeds 6.2% of annual GDP and is expected to rise to nearly 8% of GDP in 2024, reaching nearly 40% of total budget spending. There is.

Russia finances its deficit spending through reserves in the Wealth Fund (currently estimated liquidity by the Ministry of Finance is 6.94 trillion rubles, equivalent to 4.6% of GDP) and government loans. By November 1, the total amount of soft loans amounted to 11 trillion rubles, equivalent to 7% of GDP and more than 14% of Russian banks’ credit portfolio. Major state-owned companies (Russian Railways, AvtoVAZ, Aeroflot, Roscosmos, etc.) have begun lobbying for preferential terms of financing.

Central bank governor Elvira Nabiullina warned that the government is fueling inflation by subsidizing more and more borrowing, forcing her to keep key interest rates high. Inflation reached an annual rate of 7.5% in November and showed no signs of slowing down. What’s slowing down: Russia’s economic growth. The central bank said the recovery peaked in the third quarter of 2023.

Russia’s human resources problems

Lack of industrial capacity and labor will also limit the development of Russia’s manufacturing industry, Raiffeisenbank analysts say Stanislav Murashov. Moreover, further increases in key interest rates will slow wage growth and complicate the work of technological upgrading for enterprises. Bloomberg Economics’ chief economist said near-full employment would redistribute the workforce across sectors, drawing workers from sectors hit by rising interest rates such as construction, retail and finance to companies in Russia’s military-industrial complex. We predict that there will be an influx. Alexander IsakovHe believes that future interest rate increases will reduce lending, which in turn will reduce consumer demand. further recession This will increase to more than 70% within the next six months.

More than 85% of companies are facing a talent shortage, with skilled workers being the most scarce. Although wages rose nominally by 13.2% in the first nine months of 2023 and the unemployment rate fell to 2.9% (the lowest level in post-Soviet history), these impressive statistics are still 3.6% higher than in 2021. It hides a major problem with declining labor productivity. — Worst decline since 2009. The emigration of skilled workers fleeing war and political repression, not to mention the participation and deaths of hundreds of thousands of people, drained Russia’s labor pool of new talent. About a million Worker.

Although the invasion will remain the government’s top priority, there will be relatively less funding for developing Russia’s human capital through spending on education and health care. The longer this situation lasts, the harder it will be for the Kremlin to return to solving complex “civilian” problems, and the easier it will be for the war to prolong.