Unmasking the Illusion: The Fragility of Russia's War Economy
The Russian economy, facing Western sanctions over the Ukraine invasion, is becoming increasingly unstable. While appearing stable, underlying structural weaknesses pose long-term risks. Reports reveal unreliable GDP and inflation data. Rising military expenses and falling oil, gas, and coal revenues increase fiscal deficits, potentially leading to banking sector risks.
A new report by the Stockholm Institute of Transition Economics (SITE) highlights the declining stability of Russia's economy due to the prolonged war and Western sanctions. While superficially resilient, the report suggests that structural imbalances threaten Russia's economic future.
Presented to the European Union finance ministers, the SITE report criticizes the reliability of Russia's economic data, citing potential underestimation of inflation and overestimation of GDP growth. Despite Kremlin claims of economic growth, SITE's Torbjorn Becker argues the fiscal figures are misleading, given the heightened policy rate at the central bank.
Russia's expenditure on its military ambitions, coupled with dwindling oil, gas, and coal earnings, has led to a concealed budget deficit much larger than reported. The European Commission concurs with SITE's analysis, emphasizing the importance of continued international sanctions to curb Russia's aggression in Ukraine.
(With inputs from agencies.)
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