Russia’s economy increasingly dependent on war for growth

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Russia’s economy is performing relatively strongly. This has a lot to do with the impetus that the military industry gives to economic growth. This also means that Russia could end up in an acute recession if the war in Ukraine were to suddenly end, according to analyst Elina Ribakova of the think tank Peterson Institute of International Economics

The International Monetary Fund calculated this the Russian economy growing by 3.2 percent this year, significantly faster than many Western economies. While this looks good on paper, the country is at risk of a hard economic landing if the war effort were to suddenly end, Ribakova writes in an op-ed for the British newspaper Financial Times.

According to Ribakova, economic sanctions will not stop Russia from continuing the fight in Ukraine, as was expected. Fears of economic stagnation are more likely to prompt President Vladimir Putin and his advisers to further ramp up the country’s militarization even if aggression against Ukraine comes to a halt.

Russia’s economic resilience evident over the past year is mainly due to its military-industrial expansion, heavily supported by fiscal support from the Kremlin.

According to Ribakova, Russia’s direct military spending has more than tripled since the start of the war and now officially amounts to 6 percent of national income. According to the analyst, the actual figure is probably even higher, because a substantial part of government expenditure is not included in the official figures.

Russia’s military industry creates jobs in neglected regions

Boosting the defense industry will help regions of Russia that have struggled for years. Disadvantaged regions are now getting a boost as a result of the production shift. Local governments are reporting an increase in the number of jobs, production facilities and businesses, Ribakova said.

Also Read: The Ukrainian State Will Be Destroyed if the War Continues

Since the start of the war in Ukraine, the total number of military-industrial establishments in Russia has increased from 2,000 to 6,000.

The shift towards war-based economic growth is beginning to take on a structural character. According to Ribakova, this means that continued Russian aggression has become important to keep the economy going.

“Reversing investments made during the war will be a huge challenge. For decades, Russia has struggled with underinvestment and regional inequality, with only a handful of regions that mainly produce raw materials being net contributors to the fiscal transfer system,” Ribakova said .

If hostilities were to end, Russia could well enter a recession. From that point of view, there is an incentive for Putin to continue the fight: “Should the authorities choose to stop militarization, a hard economic landing could increase pressure on the government, which is already resorting to repression to maintain power,” the analyst said.