Russia's new war economy: this is how Moscow moves

The war in Ukraine has led Russia to deal with restrictions and heavy sanctions but there has not been, at least for the moment, the collapse of its economy.
In view of 2024, rather than Western sanctions, which have become even harsher in the meantime, the bugaboos that threaten Moscow are called devaluation of the ruble, inflation and the real estate bubble.
There are multiple interpretations of the facts.
For Alexandra Prokopenko, a former Russian central bank official, the Russian Federation is pouring so much into the Ukrainian conflict that the effort is draining resources from the rest of the economy.
In other words, the defense sectors – and more generally everything connected with war – are overshadowing civilian industries.
Russia has allocated almost a third of its budget for 2024 – totaling around 380 billion euros – to defense spending.
Social spending, including salaries, pensions and benefits, will instead represent around a fifth of the same pie.
Russia's militarized economy The Russian economy, therefore, is moving towards a militarized economy, centered on and dependent on the conflict in Ukraine.
The military sector is also “siphoning” labor from the civilian workforce, leading to an abnormally low unemployment rate of 2.9 percent, Foreign Affairs noted.
In all this, Moscow is grappling with a manpower crisis but also with a massive brain drain, many of which are expatriates abroad.
Ultimately, the sanctions-hit Russian economy appears resilient as it is driven by wartime spending.
So the sanctions have no effect? Question whose answer is worth a billion dollars.
“The main mistake of Western experts and politicians was to invent fairy tales according to which the entire Russian economy is managed by the state.
The sanctions were applied on the assumption that (the Russian one) was a state economy, inflexible and therefore destined to collapse rapidly.
But it was a mistake, because the Russian economy is largely a market economy,” economist Vladislav Inozemtsev, founder of Moscow's Center for Post-Industrial Studies, told El Pais.
Just as an example, private Russian companies have found ways to survive despite sanctions by venturing into creating new sales channels and supply chains, and targeting illegal imports through non-Western countries.
Putin's challenges The Russian authorities forecast GDP growth of around 3.2% for 2024.
Janis Kluge, economics expert at the German Institute for International and Security Affairs, wrote on the think tank Riddle that 2024 will be the litmus test for the Russian system after two years – 2022 and 2023 – positive thanks to accumulated reserves before the war and to the extra revenue obtained at the beginning of the offensive thanks to the shock in international gas and oil prices caused by the war itself.
In any case, there would appear to be three challenges for Vladimir Putin, called to finance the ongoing war against Ukraine, maintain the standard of living of his population and safeguard macroeconomic stability.
Achieving the first and second objectives requires higher spending, and this could fuel inflation and prevent the third bullet point from being reached.
However, it is risky to venture into predictions and hypotheses.
As mentioned, those drawn up over the last two years regarding the Russian "collapse" have had the same effect as a blank.
Of course, the situation in the shadow of the Kremlin is not rosy, it is complex and delicate, but still far from failure.
Barring sensational twists.
read also The real estate bubble that scares the Russian economy

Author: Hermes A.I.

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