His war on Ukraine may not be unfolding according to plan, but President Vladimir Putin can still claim that the Russian economy is performing, as he says, “better than previously expected”. This kind of understatement is unusual for the Kremlin leader: with a tight labour market and inflation showing no signs of abating, the Russian economy is in fact overheating.
Look beyond the surface, however, and it is clear not only that the current boom is temporary, but also that it is the prelude to a painful economic future. Putin has moved the economy into full war-financing mode. This implies that he is planning for a long conflict in Ukraine, which Russia invaded in February 2022.
Russia’s GDP will expand by 2.2% this year, according to the International Monetary Fund’s most recent prediction. That’s three times as fast as the euro zone’s expected growth this year. Back in February, the IMF’s forecast that Russia would grow by 0.7% in 2023 was widely judged to be optimistic. The main reason for the surprise boom is the spending bonanza unleashed by the government, which has broken with a long tradition of fiscal restraint to finance its war in Ukraine.
The defence budget has risen to an equivalent of 3.9% of GDP this year from 2.7% in 2021, the year before the invasion of Ukraine. It will jump by more than 70% in 2024, reaching about 6% of GDP, according to official plans. And these are conservative numbers, because other types of war spending – such as new construction in the occupied territories – are hidden in other sections of the budget.
The war effort is concentrating public resources on a military-industrial sector rife with corruption, inefficiency and alien to the concept of profit.
Military priorities are also weighing on the rest of the industry by mobilising human resources, contributing to a tight labour market. The unemployment rate fell to an all-time low of 3% in August – it had never been below 4.4% before the war. More than 300,000 Russian men have been mobilised for the war. Employers are complaining about staff shortages, which are becoming acute even in industries, such as textiles, with few connections to the war machine.
The Russian economy’s good performance is also helped by its gradual adaptation to Western sanctions. Moscow has found loopholes and new trade routes to import banned components that are first exported by Europe to other countries – from aviation parts through Lithuania to microchips through Kazakhstan. Meanwhile the rise in oil prices, up nearly 60% since their March lows, is providing some welcome economic relief, and much-needed revenue for the government. Putin now says that the budget deficit will be just 1% of GDP this year, half previous government estimates, thanks to oil and gas taxes.
The good news, however, is limited to the short term. In the medium term, the economy is threatened by a series of “time bombs”, to use the words of Russian economist Alexandra Prokopenko.
The first is the exodus of talent. The tight labour market is also due to the emigration of qualified workers after the Ukraine invasion. According to an estimate by Re: Russia, an independent publication, between 800,000 and 900,000 Russians have left the country since February 2022. They include many highly skilled workers, notably in the tech industry, and employees of foreign-based firms or organisations. That will, over time, affect the economy’s growth potential.
The second threat is the ailing rouble . The Russian currency is down 30% since its January high. Its fall has accelerated since the June mutiny of Putin’s former ally Yevgeny Prigozhin and his Wagner mercenaries. The Bank of Russia has been unable to stem the slide even after raising its key rate from 7.5% to 13% this year.
India’s economy will become carbon neutral by the year 2070, the country’s prime minster has announced at the COP26 climate crisis summit in Glasgow. The target date is two decades beyond what scientists say is needed to avert catastrophic climate impacts. India is the last of the world’s major carbon polluters to announce a net-zero target, with China saying it would reach that goal in 2060, and the United States and the European Union aiming for 2050.
China's carbon emissions are vast and growing, dwarfing those of other countries. Experts agree that without big reductions in China's emissions, the world cannot win the fight against climate change. In 2020, China's President Xi Jinping said his country would aim for its emissions to reach their highest point before 2030 and for carbon neutrality before 2060. His statement has now been confirmed as China's official position ahead of the COP26 global climate summit in Glasgow. But China has not said exactly how these goals will be achieved.
China's carbon emissions are vast and growing, dwarfing those of other countries. Experts agree that without big reductions in China's emissions, the world cannot win the fight against climate change. In 2020, China's President Xi Jinping said his country would aim for its emissions to reach their highest point before 2030 and for carbon neutrality before 2060. His statement has now been confirmed as China's official position ahead of the COP26 global climate summit in Glasgow. But China has not said exactly how these goals will be achieved.
A crucial U.N. conference heard calls on its first day for the world's major economies to keep their promises of financial help to address the climate crisis, while big polluters India and Brazil made new commitments to cut emissions. World leaders, environmental experts and activists all pleaded for decisive action to halt the global warming which threatens the future of the planet at the start of the two-week COP26 summit in the Scottish city of Glasgow on Monday. The task facing negotiators was made even more daunting by the failure of the Group of 20 major industrial nations to agree ambitious new commitments at the weekend.