Four years after Vladimir Putin ordered an invasion of Ukraine, Russia\u2019s economy has entered a \u201cdeath zone,\u201d said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center.<\/p>\n
In a recent Economist op-ed, the former Russian central bank advisor drew on a term from mountain-climbing, when high altitude forces the body to consume itself faster than it can repair itself.<\/p>\n
\u201cRussia\u2019s economy is stuck in what might be described as negative equilibrium: holding itself together while steadily destroying its own future capacity,\u201d she wrote.<\/p>\n
The economy isn\u2019t headed for an imminent crash, but GDP has stagnated, oil revenue has been halved amid Western sanctions, and the government\u2019s budget deficit is rapidly draining reserves.<\/p>\n
At the same time, two economic systems have emerged. One comprises the military and related industries that receive priority from the Kremlin. And then there\u2019s everything else that\u2019s been \u201cleft in the cold,\u201d Prokopenko explained.<\/p>\n
\u201cThe most dangerous feature of this new structure is the fuel it burns,\u201d she added. \u201cRussia\u2019s economy now runs on what might be called \u2018military rent\u2019: budget transfers to defense enterprises that generate wages and economic activity.\u201d<\/p>\n
But the transfers are aimed at assets designed for destruction, Prokopenko pointed out. In other words, the money that keeps Russia\u2019s factories humming pays for tanks, armored vehicles, and other weapons that eventually get destroyed or damaged, making them useless for future economic growth.<\/p>\n
Similarly, money spent to attract fresh recruits to Russia\u2019s army doesn\u2019t retrain them to become more productive. Instead, many die or return home permanently wounded. The Center for Strategic and International Studies has estimated Russian military casualties at 1.2 million, including 325,000 killed.<\/p>\n
\u201cThe body is metabolizing its own muscle tissue for energy,\u201d Prokopenko said.<\/p>\n
\u2018The longer you stay, the worse it gets\u2019<\/p>\n
While the central bank has cut interest rates to prop up growth, and the Kremlin has taken steps to rein in the budget deficit, Russia\u2019s economic predicament can\u2019t be fixed with monetary or fiscal policies, she wrote.<\/p>\n
In fact, interest payments on government debt this year are already set to exceed spending on education and health care combined.<\/p>\n
Unlike a cyclical downturn such as a recession, Prokopenko argued that what Russia is suffering from is more akin to altitude sickness\u2014\u201cthe longer you stay, the worse it gets, regardless of rest.\u201d<\/p>\n
But Putin can\u2019t afford to climb back down the mountain as the economy has becoming increasingly reliant on the defense sector, while a military demobilization would likely trigger an economic crisis. And rather than end the war, Putin insists on continuing as he waits to see if Ukraine or its Western backers crack first.<\/p>\n
\u201cRussia can probably continue waging war for the foreseeable future,\u201d she predicted. \u201cBut no climber can survive the death zone indefinitely\u2014and not all climbers who attempt the descent survive it.\u201d<\/p>\n
Alarm bells about the economy have been coming from inside Russia in recent months. Russian officials warned Putin that a financial crisis could hit by the summer, sources told the Washington Post earlier this month.<\/p>\n
They pointed to weak oil revenue, which crashed by 50% in January from a year earlier, and a budget deficit that continues to widen, even after Putin hiked taxes on consumers.<\/p>\n
A Moscow business executive also told the Post that the crisis could arrive in \u201cthree or four months\u201d amid spiraling inflation, adding that restaurants have been closing, and thousands of workers are getting laid off.<\/p>\n
Putin\u2019s bluff<\/p>\n
The economic strains go back to Russia\u2019s invasion of Ukraine four years ago. As sanctions took hold and Putin mobilized the economy for a prolonged war, a tight labor market and high inflation forced the central bank to keep interest rates high. Recent easing has failed to prevent spending declines in several consumer categories.<\/p>\n
With companies feeling the squeeze of high rates and weaker consumption, more workers are going unpaid, getting furloughed, or seeing their hours cut. As a result, consumers are having trouble servicing their loans, raising concerns of a crash in the financial sector.<\/p>\n
\u201cA banking crisis is possible,\u201d a Russian official told the Post in December on condition of anonymity. \u201cA nonpayments crisis is possible. I don\u2019t want to think about a continuation of the war or an escalation.\u201d<\/p>\n
At the same time, Western officials have been trying to dispel the notion that Russia is winning. Indeed, Ukraine has even launched a counterattack in recent weeks to take advantage of Russian troops getting cut off from SpaceX\u2019s Starlink internet service.<\/p>\n
The Institute for the Study of War estimated that Ukraine has liberated at least 168.9 square kilometers of territory in the southern part of the country since Jan. 1.<\/p>\n
Russia\u2019s military is now suffering more casualties than it can recruit, according to Christina Harward, deputy Russia team lead at the Institute for the Study of War.<\/p>\n
She wrote in the New York Post on Sunday that Putin may even need to begin a limited, rolling military call-up to sustain his war, adding that his bravado in negotiations is really a bluff.<\/p>\n
\u201cWith recruitment rates declining, inflation rates rising, and his troops\u2019 ability to actually seize the territory he so desires in question, it won\u2019t be long before Putin has to force his population to suffer economic hardship\u2014and death,\u201d Harward said.<\/p>\n
Source: RhinoEasy News<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Four years after Vladimir Putin ordered an invasion of Ukraine, Russia\u2019s economy has entered a \u201cdeath zone,\u201d said Alexandra Prokopenko,<\/p>\n","protected":false},"author":1,"featured_media":1789,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"colormag_page_container_layout":"default_layout","colormag_page_sidebar_layout":"default_layout","footnotes":""},"categories":[9],"tags":[],"class_list":["post-1790","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/posts\/1790","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1790"}],"version-history":[{"count":0,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/posts\/1790\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=\/wp\/v2\/media\/1789"}],"wp:attachment":[{"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1790"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1790"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/rhinoeasy.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1790"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}