Source: Fortune
Summary
Russia’s economy has entered a “death zone” four years after Vladimir Putin’s invasion of Ukraine, according to Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center. The economy is stuck in a negative equilibrium, with stagnant GDP, halved oil revenue, and a rapidly draining budget deficit. Two economic systems have emerged, one prioritizing the military and related industries, while the rest are “left in the cold.” The economy is fueled by “military rent,” with budget transfers to defense enterprises generating wages and economic activity, but ultimately leading to destruction. Russia’s central bank has cut interest rates, but the economic predicament cannot be fixed with monetary or fiscal policies.
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The numbers tell one story.
Russia’s economy is in a state of “negative equilibrium,” with a stagnant GDP and a rapidly draining budget deficit. The government’s priority on the military and related industries has created a system that “burns” its own muscle tissue for energy. The economy is fueled by “military rent,” which generates wages and economic activity but ultimately leads to destruction. Putin can’t afford to climb back down the mountain as the economy has become increasingly reliant on the defense sector. The longer Russia stays in this state, the worse it gets.
Russia’s economic predicament is like altitude sickness – the longer you stay, the worse it gets, regardless of rest.
Author: Evan Null
