Russia faces a crisis regardless if Putin ends or continues the war in Ukraine, economist says

• Russia faces a situation whether it continues nan warfare aliases not, economist Alexander Mertens says.
• He pointed to signs of economical distress for illustration precocious ostentation and liking rates.
• War spending has been a awesome boost to Moscow's GDP maturation and wealth, and ending nan warfare will beryllium tricky.

Russia's overheated system is almost surely headed for a crisis nary matter what Vladimir Putin does, according to a Ukrainian economist.

Alexander Mertens, a professor of finance and economics astatine Kyiv's International Institute of Business, issued a grim forecast astir Russia's economical early successful nan midst of nan nation's 3rd twelvemonth of its warfare against Ukraine.

If Russia continues nan war, nan system looks connected way for a "severe recession" and long-running stagnation, Mertens said. However, if nan warfare stops, nan system is successful problem trouble, fixed really overmuch warfare spending has pumped up maturation amid a shortage of superior and workers, Mertens wrote successful an op-ed for nan Atlantic Council connected Thursday.

"The existent authorities of nan Russian system is acold from captious but it does coming Putin pinch a dilemma. He presently appears intent connected continuing nan warfare indefinitely while hoping to outlast nan West and exhaust Ukraine. Alternatively, he could activity to move toward a colony of immoderate kind. However, location is simply a very existent threat that either action could extremity up plunging Russia into a superior economical crisis," Merten said.

Merten pointed to nan section of reddish flags for Moscow's system since it began its penetration of Ukraine.

For one, while Putin has rebuffed nan effect of Western sanctions, nan restrictions are intelligibly having an effect connected Russia's waste and acquisition and finances, pinch nan nation's energy gross falling by astir a 4th 2023.

Russia's sovereign wealthiness fund is besides shrinking. Around 44% of liquid assets successful nan Russian National Welfare Fund were depleted from nan commencement of nan penetration to December 2023, according to information from Russia's finance ministry.

The federation is besides suffering from a severe worker shortage and a looming demographic crisis, which person been exacerbated by nan 1 cardinal Russians estimated to person fled nan state successful nan early days of nan war.

Russia's cardinal bank, meanwhile, raised liking rates to 21% successful October, a motion policymakers are scrambling to get ostentation — which clocked successful good supra target astatine 8.6% — nether control.

"While Kremlin officials and galore world analysts insist that nan Russian system remains successful remarkably bully shape, nan country's longer-term economical outlook is becoming progressively precarious," Merten said. "Taken together, these antagonistic factors are apt to lend to a play of slower growth, if not stagnation.

And yet, Russia can't easy extremity nan warfare without shutting disconnected 1 of nan cardinal engines of its economy: its hefty defense budget. The federation allotted a grounds 6% of GDP to defense spending successful 2024.

That's been a awesome facet down Russia's coagulated economical growth, Merten said, pinch existent GDP successful nan federation connected way to grow different 3.6% this year, according to International Monetary Fund estimates.

"If Putin opts to support his uncompromising push for an historical triumph successful Ukraine, it is not clear that Russia has nan resources to costs a prolonged warfare connected nan coming scale. In this scenario, existent informing signs specified arsenic rising ostentation and labour shortages could yet go awesome problems," Merten said.

He continued: "If he seeks a colony and withdraws nan Keynesian crutch of today's vastly inflated subject spending, nan economical repercussions could beryllium dire. The Russian system is not yet adjacent to collapse, but it is progressively limited connected wartime conditions and faces increasing risks of overheating."

Other experts person said Russia looks to beryllium facing a Catch-22 situation, pinch nan federation neither being capable to spend winning aliases losing nan war. Over nan long-term, its system could beryllium de-industrialized aliases look a semipermanent stagnation, economists antecedently told BI.