Four years after Vladimir Putin ordered the invasion of Ukraine, the Russian economy has entered a “death zone,” said Alexandra Prokopenko, a fellow at the Carnegie Russia-Eurasia Center.
in the most recent economist In his column, the former Russian central bank adviser cited a term in mountaineering in which high altitude forces the body to wear down faster than it can repair itself.
“The Russian economy is stuck in a so-called negative equilibrium: it is maintaining its own stability while continually destroying its future capabilities,” she wrote.
The economy does not face imminent collapse, but gross domestic product has stalled, oil revenues have been halved under Western sanctions and the government’s budget deficit is rapidly depleting reserves.
At the same time, two economic systems emerged. One is made up of military and related industries prioritized by the Kremlin. Everything else, Prokopenko explained, was “left out in the cold.”
“The most dangerous feature of this new structure is the fuel it burns,” she added. “The Russian economy now runs on so-called ‘military rent’: budget transfers to defense enterprises that generate wages and economic activity.”
But Prokopenko noted that the transfer targeted assets for destruction. In other words, the money that keeps Russia’s factories running is used to buy tanks, armored vehicles, and other weapons that are eventually destroyed or damaged, rendering them useless for future economic growth.
Likewise, the money spent on attracting new recruits to the Russian military does not retrain them to be more productive. Instead, many returned home dead or injured. The Center for Strategic and International Studies estimates Russian military casualties at 1.2 million, including 325,000 dead.
“The body is metabolizing its own muscle tissue for energy,” Prokopenko said.
While the central bank has cut interest rates to support economic growth and the Kremlin has taken steps to rein in the budget deficit, Russia’s economic woes cannot be solved through monetary or fiscal policy, she wrote.
In fact, interest payments on government debt have exceeded spending on education and health care combined this year.
Prokopenko believes that unlike cyclical downturns such as economic recessions, the disease suffered by Russia is more akin to altitude sickness – “regardless of the break, the longer you stay, the more severe it becomes.”
But Putin is unable to climb back down because the economy is increasingly reliant on the defense sector and demobilization of the military could trigger an economic crisis. Rather than ending the war, Putin insists on continuing it, waiting to see if Ukraine or its Western backers collapse first.
“Russia is likely to continue waging war for the foreseeable future,” she predicted. “But no climber can survive the death zone indefinitely, and not all climbers who attempt a descent do so.”
In recent months, economic alarm bells have been ringing within Russia. Russian officials warned Putin that a financial crisis could break out this summer, sources told Russian officials. washington post earlier this month.
They point to weak oil revenues, which plunged 50% in January from a year earlier, and the budget deficit that continues to widen even as Putin raises consumer taxes.
A Moscow business executive also told Caijing postal Amid rising inflation, the crisis could arrive in “three to four months”, it said, adding that restaurants were already closed and thousands of workers laid off.
The economic pressure can be traced to Russia’s invasion of Ukraine four years ago. Tight labor markets and high inflation have forced the central bank to keep interest rates high as sanctions are imposed and Putin mobilizes the economy to fight a protracted war. Recent policy easing has failed to stem declines in spending across several consumer categories.
As businesses feel the pinch from high interest rates and weak consumption, more workers are facing no pay, furlough or reduced hours. As a result, consumers are having trouble repaying their loans, raising fears of a financial sector collapse.
A Russian official told the Financial Times: ‘A banking crisis is possible’ postal December, who requested anonymity. “A non-payment crisis is a possibility. I don’t want to think about the war continuing or escalating.”
Meanwhile, Western officials have sought to dispel the notion that Russia is winning. In fact, in recent weeks, Ukraine has even taken advantage of the Russian military being cut off from SpaceX’s Starlink internet service to launch a counterattack.
The Institute for War Research estimates that Ukraine has liberated at least 168.9 square kilometers of territory in the south of the country since January 1.
Kristina Harward, deputy director of the Russia team at the Institute for War Studies, said the Russian military currently has more casualties than it can recruit.
She is in ” new york post Putin may even need to start limited, rolling military call-ups to sustain his war, he said on Sunday, adding that his bluff in negotiations was actually a bluff.
“With draft rates falling, inflation rising, and his military’s ability to actually seize the territory he desires, it won’t be long before Putin has to force his people to suffer economic hardship and even death,” Harward said.
This story originally appeared on Fortune.com
