Russia's economic mirage: GDP boost masks deeper crisis
In 2024, the economy reached its peak, and it certainly won't improve. Although in 2025, war production will still drive GDP, this boost will soon fade, predicts Jan Starosta, an expert on Russia from the Institute of New Europe, in an interview with "Puls Biznesu".
According to official Kremlin data, the Russian economy is thriving despite sanctions imposed by the West due to the military invasion of Ukraine. The International Monetary Fund forecasts that in 2024, GDP will grow by 3.6 percent. However, Jan Starosta from the Institute of New Europe views this as merely an illusion.
"This is an empty growth driven by internal consumption, which serves as a form of escape from high inflation. On paper, the economy indeed looks quite good, but ordinary Russians are finding it increasingly difficult to live each year, with the standard of living declining. The cost of living for average Russians has clearly increased," says the expert in an interview with "PB".
The growth—whether real or on paper—is the result of switching the economy to war mode. According to Jan Starosta, this may be why Russia will not want to end the conflict.
"The economy is overheated. Switching production to war mode in 2022 was expensive; data shows that the fiscal stimulus alone cost about 10 percent of GDP, or around 150 billion USD. Reverting production would mean additional costs, a decrease in internal demand, and reduced real wages for part of the population, which could result in social unrest," explains the expert.
The near end of El Dorado
What will happen next? "In 2024, the economy hit the ceiling and certainly won't get any better. Although in 2025, war production will still drive GDP, this boost will soon fade. A marked deterioration in growth dynamics should occur in 2026," assesses Jan Starosta.
The expert from the Institute of New Europe is not alone in his opinion. Russia is heading toward an economic collapse, which could threaten the power of Vladimir Putin, predicts analyst and "KyivPost" correspondent Jason Jay Smart. He points out that the crisis in the real estate market, rapid inflation, and the depreciation of the ruble are destabilizing the country, causing social discontent and undermining the regime's foundations.
The state budget, based on oil prices of 72 dollars per barrel, is under pressure due to falling raw material prices. Experts, in turn, forecast the need for a ruble devaluation of 22–35 per cent to sustain government spending.
