Russia's war‑driven economy on the brink of total collapse

The Russian economy, inflated by trillions of pounds spent on state defence orders and payments to soldiers fighting in Ukraine, is increasingly overheating. Putin's war machine operates around the clock, yet GDP is declining. An expert says that the end of the war could cause a "total collapse" of the economy.

As reported by Rosstat, the Russian economy grew by 3 per cent year over year in June, although it was 1.5 per cent higher a month earlier. In February, this level reached 7.6 percent.

After two years of war and thousands of Western sanctions, industry slowed to 1.9 per cent, which is three times less than the previous month and winter (5.3 per cent in May and 5.6 per cent in the first quarter).

Amid payment problems affecting imports to Russia, wholesale trade growth has practically ground to a halt: in June, it increased by just 1.9 per cent year-on-year, although in May, this rate rose by 11.1 per cent, and at the end of last year by 16-20 per cent or more.

Rosbank analysts note that economic activity has slowed in almost all sectors. The growth rate in construction has fallen nearly sixfold. Retail turnover dynamics have dropped to the lowest level in a year and a half, while goods work in agriculture and transport has started to decline—by 0.3 and 0.8 per cent, respectively.

The economy positioned on the brink of war has hit a dead end: sending a million citizens to war has caused an unprecedented staff shortage, and the boom in the defence industry and import substitution has ‘absorbed’ all available factory and plant resources. Central Bank President Elvira Nabiullina said last week that the country's labour reserves and production capacities are practically exhausted.

According to her estimates, the economy's overheating has reached a record level in the past 16 years, which ultimately could result in stagflation and a “deep recession.”

According to the Central Bank's forecasts, the Russian economy could slow down to almost zero next year. The dynamics of investments and private consumption may also drop to zero. Additionally, foreign deliveries to Russia will continue to decline—they will amount to £235 billion this year, which is £10 billion less than this year and nearly £39 billion less than before the annexation of Crimea (2014).

Shifting the economy to war mode has led the Kremlin into a dead end: almost all economic growth is driven by the defence industry, and the end of the war could cause a "total collapse" of the economy - notes Renaud Foucart, a professor at Lancaster University, quoted by "The Moscow Times".

The Russian regime has no incentive to end the war and deal with that kind of economic reality. So it cannot afford to win the war, nor can it afford to lose it. Its economy is now entirely geared towards continuing a long and ever deadlier conflict – Foucart warns.