Russia's Economy in the Ukraine War: Growth or Dependence?

Russia's Economy in the Ukraine War: Growth or Dependence?

Russia's economy is experiencing considerable growth despite the war in Ukraine and the existing sanctions. According to the Kremlin, in the third quarter of 2023 the gross domestic product increased by 5.5 percent compared to the previous year. Experts estimate that growth will still be 2.8 percent in 2024. A notable aspect of this is that many experts believe that Russia's economic growth is occurring not in spite of the war, but because of its dependence on it.

Investment in war is a central factor driving economic growth in Russia. The state uses around 40 percent of its budget for war-related expenses. In addition, soldiers' salaries, expenses for weapons and equipment, and compensation for those injured or killed in action contribute to the country's gross domestic product. Regulating foreign companies and trading through third countries allows Russia to circumvent the economic pressure of foreign sanctions.

Despite the positive growth associated with the Ukraine war, other sectors of the Russian economy are suffering significantly. There is a clear shortage of skilled workers, with young workers either leaving the country or being drafted into military service. This situation has led to a deficit of around five million skilled workers. Direct investment is also declining, falling $8.7 billion in the first three quarters of 2023.

Experts emphasize that Russia has no incentive to end the Ukraine war due to its current economic structure. Even in the event of victory, the costs of rebuilding and securing the country would be too high. There is also a risk that Russia would become internationally isolated and economically dependent on China. A protracted shutdown may therefore appear to be the only solution to avoid a complete economic collapse. The conclusion of many experts is that the Russian regime can neither win nor lose and continues to cling to the conflict.