According to a European economist, the Russian economy is completely overwhelmed by the war in Ukraine, so Moscow can neither afford to win nor lose the war. Renaud FoucartProfessor of economics at Lancaster University, highlighted Russia's dire economic situation as the war in Ukraine enters its second year.
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Military spending
According to the Russian government, the Russia's GDP grew by 5.5% On an annual basis in the third quarter of 2023. But most of that growth is due to the country's huge military spending, Foucart said, with the Kremlin set to spend a record 36.6 trillion rubles, or $386 billion, on defense this year. “Military pay, ammunition, tanks, aircraft and compensation for dead and wounded soldiers all contribute to the increase in GDP. In simple words, The war against Ukraine is now the main driver of Russian economic growth» said Foucart in an editorial for The Conversation this week.
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Other sectors of the Russian economy are struggling as the war continues. Moscow is facing a severe labor shortage as young professionals flee the country or are caught up in the conflict. According to one estimate, the country is currently short of around 5 million workers, causing wages to skyrocket. Inflation is at 7.4%, almost double the central bank's 4% target. Meanwhile, direct investment in the country has fallen sharply, falling by about $8.7 billion in the first three quarters of 2023, according to the Russian Central Bank. All of this puts the Kremlin in a difficult position, regardless of the outcome of the war in Ukraine.
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If Russia wins
Even if Russia wins, the country cannot afford to rebuild and protect Ukraine due to the financial costs and the impact of isolation from the rest of the global market. Western nations have avoided trade with Russia since the 2022 invasion of Ukraine, which economists say could significantly harm Russia's long-term economic growth. As long as it remains isolated, Russia's “best hope” is to become completely “dependent on China,” one of its few remaining strategic allies, Foucart said. Meanwhile, the costs of rebuilding one's own nation are already “enormous,” he added, citing problems such as damaged infrastructure and social unrest in Russia. “A prolonged shutdown may be the only solution for Russia to avoid complete economic collapse,” Foucart wrote.
Conflicts are worth it
“The Russian regime has no incentive to end the war and face such an economic reality.” So it can neither afford to win the war nor can it afford to lose it. Its economy is now fully geared to continuing a long and increasingly deadly war.” Other economists have warned that Russia faces difficulties because of the fallout from the war in Ukraine. The Russian economy will experience significantly greater deterioration.
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