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Russian economy cannot avoid collapse and faces potential shocks, think tank says

Russia’s economy is fragile and policymakers won’t be able to stave off a crisis for long, a think tank researcher said Tuesday.

Alexander Kolyandr, an expert on Russian economics and researcher at the Center for European Policy Analysis, highlighted the growing challenges facing the Kremlin as the war in Ukraine drags into its third year.

Russian central bankers and policymakers have so far managed to keep the economy afloat, but their luck is doomed to run out, Kolyandr warned.

“Putin knew that the economy was best left to professionals. Indeed, the men and women who run the central bank, the Ministry of Finance and the Ministry of Economic Development remain highly qualified and have saved the country from economic collapse in 2022,” Kolyandr wrote. in a recent note. “Two years later, they clearly understand the long-term impossibility of the task they were given. The question is: will they dare tell the boss? And if they do, will he listen ?”

Russia’s economy has shown key signs of weakness since the West began imposing sanctions on the nation in 2022. Trade restrictions, such as banning energy imports to Europe and capping the price of Russian oil to 60 dollars a barrel, dealt a heavy blow to the Russian economy. The Kremlin’s war chest as Russia’s energy revenues fell 24% last year.

Russia is also reeling from the growing costs of its war, both financially and in terms of human capital. The country now faces a severe labor shortage, which has driven up wages and inflation.

In Russia, prices are rising at a rate of around 8%, double the central bank’s official target. Interest rates have also climbed as high as 16%, as policymakers try to stem the tide of inflation, which poses another burden for consumers.

“As a result, the Kremlin finds itself in a three-way situation of its own making. The government cannot cut spending while the war continues. The war, however, saps manpower, fueling inflation and diminishing both welfare and public opinion. And the high interest rates, necessitated by all this inflation, stifle investments in productivity and further distort. economy,” Kolyandr said.

Other experts have noted that Russia faces a dilemma as it juggles managing its economy with prolonging its war against Ukraine. According to a European economist, the nation has become dependent on war for its economic growth and it cannot afford to win or lose the war.


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