• Tue. Mar 5th, 2024

Russia’s Shift to War Economy: Sustaining Growth in the Short Term, Facing Systemic Collapse in the Long”?

ByEditor

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

Russia’s economy has experienced growth in 2023 thanks to its 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.

The Russian state 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, effectively circumventing the sanctions. Moreover, the country’s resource extraction levels remain almost unchanged from the pre-war period.

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

Looking ahead, demand for oil and gas is expected to peak by 2025 and Russia’s competitors will increase production posing a challenge to its economy. Additionally, while investing heavily in arms production may seem counterproductive in terms of economic growth in this instance it is seen as an aspect that will not sustain long term success. Nonetheless Islam cautions against expecting a collapse by end of this year but rather a gradual decline over time

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