Russia’s war economy is facing significant challenges due to the loss of people and shortages in technology, according to International Monetary Fund (IMF) managing director Kristalina Georgieva. She stated that while high military spending has boosted economic growth, the Russian economy is heavily dependent on state-funded arms and ammunition production, which masks the problems affecting living standards for Russians.
Georgieva discussed with CNBC the IMF’s forecast of 2.6% GDP growth for Russia this year, noting that it represents an investment in the war economy. She expressed concern that despite this growth, military production is increasing while consumption is decreasing, creating a situation similar to what the Soviet Union experienced with high production and low consumption.
Russia’s economy rebounded sharply from a slump in 2022, resulting in 3.6% growth in 2023, after a 1.2% contraction the previous year. However, Russia-based economists have pointed out that this economic growth is of poor quality, emphasizing that while missiles and shells may contribute to higher GDP, they offer limited benefit to the population.
In addition to these challenges, Georgieva highlighted that Russia’s economy is facing tough times due to the outflow of people and reduced access to technology as a result of sanctions. Despite the seemingly positive 2.6% GDP growth forecast, she suggested that there is a bigger, less positive story behind it.
The war effort has had a significant impact on Russia’s economy, leading to shortages in labor and capital goods as well as increased prices for goods and services. This has led some experts to predict further economic contraction in the coming years if there is no end to hostilities.
Overall, while Russia has made some progress in terms of economic recovery after several difficult years under sanctions and conflict conditions