Eastern Europe

Russian Economy Heats Up Due To War Time Spending

Image by Vasily Iakovlev

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Russia’s war time economy is booming, giving Russian President Vladimir Putin bragging rights in the face of Western sanctions, but also causing concerns about overheating, that could end in recession.

Economic growth in Russia is indeed continuing at a furious pace. Last year, Russian GDP expanded 3.6%, which was above the world average of 3.1%. And in the first quarter of this year, Russia’s economy grew as much as 5.4%. The World Bank has already had to twice upgrade Russian GDP growth forecasts for 2024 – from 1.3% to 2.2%, then to 2.9%, reported independent Russian news outlet The Bell.

In Russia, the two primary indicators of overheating are inflation and labor shortages, according to the Central Bank. These two indicators are closely linked: high consumer demand pushes up prices. And that demand is fanned by uncontrolled wage increases (21.6% in March compared to the same month a year earlier). Wages are rising particularly fast in industrial regions with the biggest increases in Siberia’s Kurgan Region (+33%) that is home to the only factory in Russia manufacturing infantry combat vehicles.

Inflation is also rising with no end in sight due primarily to labor shortages.

Russia’s rapid rise in inflation shows no sign of slowing. Between June 18 and June 24, weekly inflation accelerated from 0.17% to 0.22%, according to the Economic Development Ministry. Annual inflation went up to 8.61%, added The Bell.

The result of this hyper growth phase for the Kremlin will likely be very high interest rates for businesses and the Russian consumer.

Where that ends, no one knows.

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