Is Victory Too Costly? Russia’s Economy Teeters on the Brink, Economist Warns

Image Credit: Lancaster University

An economist from Europe has sounded the alarm over Russia’s economic predicament, asserting that the nation’s economy is so entrenched in its war efforts in Ukraine that it finds itself in a precarious position where neither victory nor defeat is affordable.

According to Renaud Foucart, a senior economics lecturer at Lancaster University, Russia’s economic landscape is heavily influenced by its prolonged involvement in the conflict in Ukraine, now entering its third year. Despite the Russian government’s reports of a 5.5% year-over-year GDP growth in the third quarter of 2023, Foucart emphasizes that this growth is largely fueled by exorbitant military expenditures. With plans to allocate a record 36.6 trillion rubles, equivalent to $386 billion, for defense spending this year, the war against Ukraine has become the primary driver of Russia’s economic expansion, Foucart outlined in a recent op-ed for The Conversation.

However, while military spending may contribute to GDP figures, other sectors of Russia’s economy are facing significant challenges. A severe labor shortage, stemming from professionals fleeing the country or being drawn into the conflict, has left Moscow grappling with a deficit of around 5 million workers. This scarcity has led to a surge in wages, exacerbating inflation, which has soared to 7.4%, nearly double the central bank’s target of 4%. Additionally, direct investment in the country has plummeted, dropping approximately $8.7 billion in the first three quarters of 2023, as reported by Russia’s central bank.

The economic ramifications of the war present a conundrum for the Kremlin. Even in the event of a victory, Russia would struggle to finance the reconstruction and stabilization of Ukraine, given the financial burdens and continued isolation from global markets resulting from Western sanctions imposed following the invasion in 2022. This isolation has severed significant trade ties and hindered Russia’s long-term economic prospects.

Faced with limited options, Russia’s reliance on China, one of its few remaining allies, appears to be its “best hope” for economic sustenance, as suggested by Foucart. However, the costs of rebuilding Russia itself are already substantial, with infrastructure in disrepair and social unrest on the rise.

Foucart posits that a prolonged stalemate may be Russia’s only viable path to avoid complete economic collapse. With its economy entirely geared toward sustaining a prolonged and increasingly costly conflict, the Russian regime lacks the incentive to pursue a resolution that acknowledges the grim economic reality it faces.

Echoing Foucart’s concerns, other economists have also warned of impending challenges for Russia as the toll of the war continues to mount. Despite assertions of resilience in the face of Western sanctions, Russia’s economic outlook remains bleak, with further degradation anticipated in the foreseeable future, according to a recent assessment by a London-based think tank.

As Russia’s economic woes deepen amid the protracted conflict in Ukraine, the nation finds itself ensnared in a quagmire with no clear path to economic recovery.

As reported by Business Insider in their recent article