RUSSIA The uncertain future of the Russian economy

Russian and former Soviet economists abroad question Moscow’s displays of optimism about a major development through relations with the East. But oil companies are increasingly burdened with taxes to finance the war and increasingly difficult access to new technologies make a general deterioration of the economy more evident every day.

Moscow () – The Eastern Economic Forum was held in Vladivostok a few days ago, where Putin and regional leaders presented the prospects for great development, especially thanks to Russia’s relations with the East. Faced with these proclamations, Russian and former Soviet economists abroad are wondering to what extent they can be considered mere propaganda façades, and whether Russia is not rather risking a possible catastrophe.

Timofej Milovanov is a professor at the University of Pittsburgh and also served as Ukraine’s Minister of Economic Development. He contributed to Fortune magazine’s article discussing precisely the topic of “Russian GDP growth and the impending catastrophe,” together with Oleg Korenok, a professor at the University of Virginia, and Mikhail Alekseev, who teaches at Indiana University. The authors of the article claim that they want to counter “cynics who create an illusorily optimistic picture of an increasingly robust Russian economy.”

In reality, the Russian government is investing huge sums in military production, taking more and more resources away from the country’s real economy. Oil companies are bearing more and more tax burdens to finance the war, and the increase in taxes is making inflation rates ever higher. The flight of hundreds of thousands of highly skilled Russian citizens, the lack of investment and the increasingly difficult access to new technologies make the general deterioration of the economy more and more evident every day. Most worrying, according to Milovanov, is the “economic growth based on non-productive investments” that are not used for the consumption of the population, and the reserve of the National Welfare Fund is also being depleted.

The situation in the Kursk region with the attack by Ukrainian armed forces seems to be a clear indication of the Russian government’s inability to help needy citizens, distributing only symbolic subsidies of 10,000 rubles – an amount that economists call “truly ridiculous.” It is not known how long Putin will be able to devote all the money to the war: one thing is the availability of cash, which comes mainly from oil sales, and another is the real state of economic parameters. According to the former minister, the situation is similar to that in the Soviet Union in the 1980s, where problems were piling up without anyone running for cover.

To break this vicious circle, economists say, it would take a shock like the collapse of oil prices, or a political crisis triggered by currently unforeseeable factors. For now, everything seems calm, but “you cannot put the economy of a country at war on your shoulders without problems arising,” warns Korenok. There is a risk of being fooled by the effect of the “sense of mobilization,” relying on the country’s vast resources to finance those who win by fighting and dying on the front, no one knows for how much longer. The economy is trying to adapt to sanctions, which are introduced gradually, without striking decisively and without creating panic among the population. Another Russian economist who teaches at Berkeley, Jurij Gorodničenko, described international sanctions as “death by a thousand stabs.”

Of these blows, the most effective are undoubtedly attacks on energy infrastructure and those restricting the possibilities of international trade. Pressure on technology companies also has a major impact, and above all the impediments to the use of international currencies, dollars, euros and even yuan, hit the mark. Russian oil revenues have been higher this year than in 2023, although they have not reached the levels of the first year of the war, when they were guaranteed huge reserves. It is also difficult to find the right balance on the part of the “sanctions coalition”, made up of countries that still need large supplies of oil and gas, and to end up leaving room for the Russian “shadow fleet”, which exports these raw materials in defiance of all containment measures. It is difficult “to take Russia by the throat, or perhaps there is no will to really do so”, comments Milovanov, and only a major change in the macroeconomic situation, which modifies the need for energy raw materials, could bring clear results. Otherwise, everything will be postponed to a time that is still very difficult to predict.

Photo: Flickr / Maxence