• Thu. Feb 29th, 2024

Russia’s Shift to a War Economy: A Short-Term Boost or Long-Term Collapse?


Feb 12, 2024
BBC predicts Russia’s economic growth may be short-lived despite recent success

The Russian economy has experienced growth in 2023, thanks to the country’s shift to a mobilized war economy under Putin’s leadership. However, BBC economics editor Faisal Islam has warned that the Kremlin will ultimately face a systemic collapse in the long term.

Russia has significantly increased its spending, particularly in military and security sectors, reminiscent of the late-Soviet era. This has come at the expense of support for other areas of the population, as funding has been redirected towards the production of tanks, missile systems, and defenses in occupied Ukraine.

Despite facing oil sanctions, Russia has managed to sustain its economy by using a “shadow fleet” to transport oil to India and China. This effectively circumvents the sanctions while maintaining almost unchanged resource extraction levels from the pre-war period.

Although Western leaders have expressed skepticism about Russia’s current economic situation, Russia’s petroleum taxes have exceeded pre-war levels and ongoing foreign exchange flow from oil, gas, and diamonds has helped alleviate pressure on the rouble value.

Looking ahead, demand for oil and gas is expected to peak while competitors increase production, posing a challenge to Russia’s economy. Moreover, tank and munition production is seen as an unproductive aspect of the economy. Nonetheless, Faisal Islam cautions against expecting a long-term collapse by the end of 2023.

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