There are several signs of a sharply increasing imbalance in the Russian economy. The country’s financial reserves may run out already in a year, says one rapport fra Stockholm Institute of Transition Economics (SITE).
Optimistic narrative
According to the report, an overly optimistic picture of the Russian economy is drawn, a representation Russia has not been slow to cultivate.
The researchers warn against using key indicators such as inflation figures and growth in gross domestic product (GDP) that come from Russia.
– These are part of the Russian propaganda, they write in the report.
Until now, it has looked as if all the sanctions against Russia have had a limited effect. The EU has adopted a total of 14 sanctions packages.
However, according to the report, real inflation is understated in official Russian statistics, while economic growth is overstated.
– The conversion to a war economy is already putting pressure on all sectors that are not directly involved in the war, the report states.
May have to print money
Recently, things have boiled over in Russia’s economy. This happens not least because Russian war factories produce around the clock. There is a shortage of labour, which drives both wages and prices sky high.
The Russian central bank has predicted economic growth of between 3.5 and 4 percent this year. At the same time, the central bank has raised the key interest rate to a sky-high 21 percent in an attempt to cool down the economy.
But the growth can quickly come to an end, the Swedish researchers are to be believed.
– The reserves that have contributed to financing the war will not last forever and may be depleted in as little as a year, the report states.
– This will increase the pressure on the central bank to lower interest rates and at some point finance the budget by printing money, it says further.
Don’t collapse anytime soon
Letting the money press go, however, can have major consequences for inflation in particular. Countries such as Zimbabwe have experienced this. In 2009, when NTB visited the country, inflation was over 230 million percent.
A complete economic collapse is still not going to happen in Russia anytime soon, the researchers believe.
– But the imbalances combined with gloomy future prospects increase the danger of such a crisis in the coming years, the report states.
Russia makes money primarily from the sale of oil.
– The oil price on the international market is the most critical variable when it comes to income. It has direct consequences for the economic room for action, inflation and growth – and the possibility of an economic crisis, write the Swedish researchers.
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**Interview with Dr. Elena Petrov, Economist at Stockholm Institute of Transition Economics**
**Interviewer:** Thank you for joining us today, Dr. Petrov. Your recent report discusses the state of the Russian economy amidst the ongoing sanctions from the EU. Could you summarize the core findings for our listeners?
**Dr. Petrov:** Thank you for having me. Our report highlights a concerning imbalance in the Russian economy, which seems to be deteriorating more rapidly than the official statistics suggest. We believe that Russia is presenting an overly optimistic view of its economic health, especially regarding inflation and GDP growth.
**Interviewer:** You suggest that these figures may be part of a propaganda effort. What indicators should we look at instead to gauge the true state of the economy?
**Dr. Petrov:** Exactly. We advise against placing too much faith in official Russian statistics. Instead, observers should focus on sectoral economic data, trade balances, and the state of financial reserves. Our analysis indicates that these reserves may become depleted within a year if the current trajectory continues, particularly given the impact of sanctions.
**Interviewer:** With the EU having imposed 14 sanctions packages, what has been their actual effect on the ground?
**Dr. Petrov:** While there was initially a perception that these sanctions had a limited effect, our report suggests otherwise. The transition to a war economy is exerting pressure on various sectors outside direct military spending. This shift is creating instability, leading to underreported inflation and overstated growth.
**Interviewer:** How do you see the situation evolving for Russia over the next year?
**Dr. Petrov:** If current trends persist, we may witness significant economic challenges for Russia, especially as the reality of the sanctions and the war economy sets in. Key sectors are already experiencing strain, and the government may soon have to confront the reality that their financial reserves are dwindling.
**Interviewer:** Thank you for sharing these insights, Dr. Petrov. It will be interesting to see how these dynamics unfold in the coming months.
**Dr. Petrov:** Thank you for having me. It’s crucial for us to remain vigilant and critical of the narratives being presented about Russia’s economy.
