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The Russian economy cannot afford to win or lose the war in Ukraine, an economist says.
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That's because Russia cannot afford the costs of rebuilding and securing Ukraine.
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The costs of restoring one's own nation are already 'massive', says Renaud Foucart.
The Russian economy is completely dominated by the war in Ukraine, so much so that Moscow cannot afford to win or lose the war, according to a European economist.
Renaud Foucart, senior lecturer in economics at Lancaster University, pointed to the dire economic situation Russia faces as the war in Ukraine enters its second year.
According to Russian government data, Russia's GDP grew at an annual rate of 5.5% in the third quarter of 2023. But most of that growth is fueled by the country's monstrous military spending, Foucart said, with plans for the Kremlin 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 GDP figures. Simply put, the war against Ukraine is now the main driver of Russian economic growth,” Foucart said in an op-ed for This Week's Conversation.
Other parts of the Russian economy are hurting as the war rages on. Moscow is facing a serious labor shortage, thanks to young professionals fleeing the country or becoming involved in the conflict. By one estimate, the country now has a shortage of about 5 million workers, causing wages to soar.
Inflation is high at 7.4% – almost double the central bank's 4% target. Meanwhile, direct investment in the country has collapsed, falling by about $8.7 billion in the first three quarters of 2023, according to data from Russia's central bank.
All this puts the Kremlin in a difficult position, regardless of the outcome of the war in Ukraine. Even if Russia wins, the country cannot afford to rebuild and secure Ukraine because of the financial costs and consequences of remaining isolated from the rest of the global market.
Western countries have shunned trade with Russia since the country invaded Ukraine in 2022, which economists say could seriously hamper 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 the country are already “massive,” he added, pointing to problems such as broken infrastructure and social unrest in Russia.
