REPORTING. High inflation, high interest rates, brain drain… The Russian economy is “overheating”, according to experts

The state of Russia’s economic health, a very important factor for the fate of the war in Ukraine, is being scrutinized at the opening of the St. Petersburg Economic Forum, which opens this Wednesday.

How is the Russian economy doing? While the Kremlin boasts about its economic record, experts agree that the Russian economy is not doing as well as Vladimir Putin claims. On Wednesday, June 5, the St. Petersburg economic forum opens in Russia: for four days, like every year, the Russian economic elite and its partners meet in the former capital for what was called the “Russian Davos “… But that was before the war against Ukraine, because the St. Petersburg forum is no longer the symbol of a Russia open to the business world. We no longer meet Western leaders there. And even the leaders of the Global South that Moscow would like to bring into its wake are relatively discreet.

This forum remains a new opportunity for Vladimir Putin to boast about his economic record during a speech he will give on Friday, a speech in which he should probably repeat what he has been saying for months: “Last year, the Russian economy grew faster than the world economy. We outperformed not only the main countries of the European Union, but also all the G7 countries”. This speech is that of Russian leaders summarized in one sentence: Russia is doing better than the West economically. Implied: the country is strong enough to resist sanctions and nothing hinders its development. This is also what state television regularly says.

Since the start of the war, the Russian government has provided massive support to its economy, through shipbuilding, but especially the defense industry. This sector today probably represents almost 10% of Russian GDP, at least 30% of the state budget is devoted to it. This massive intervention stimulates the Russian economy, which can therefore display apparently very flattering figures.

But this does not mean that the Russian economy is healthy. Vladimir Putin only retains the figures that suit him. To finance its war, Russia must draw on its reserves, sharply increase taxes, and its growth rate is artificial, believe many economists who judge that the Russian economy is in “overheated“, like Alexandra Prokopenko, former advisor to the Bank of Russia.

“This growth has two components which testify to the poor health of the Russian economy: inflation which is 10% and the level of interest rates which is incredibly high, at 16%. If the economy was healthy, a double-digit rate simply wouldn’t be necessary.”

Alexandra Prokopenko, former advisor to the Bank of Russia

at franceinfo

Russia is also experiencing major labor problems. As a result, wages are rising and this is further boosting inflation and weakening the ruble. Its prospects are therefore gloomy, judges Sylvain Bersinger, chief economist at the Asteres firm. “When the most qualified young people go abroad, it is a brake on growth in the long term. In the medium to long term, to have foreign investors who come back, technologies, it will be very difficult. has significant public spending which, it is true, supports growth, but which is intended to make bombs. It is not infrastructure spending in the country, research and development or education spending. the future of the Russian economy is not bright”analyzes the expert.

In the meantime, the Russian economy still seems to be resisting international sanctions. In particular, it manages to circumvent them by passing certain goods under embargo through countries such as Turkey or the United Arab Emirates. It sells its gas and oil to India and especially to China. But it lacks foreign investment and Beijing is doing the bare minimum, explains Alexei Sigadaev, specialist in Sino-Russian relations. “We must separate the economy from politics. On the political level, the two countries really collaborate. On the economic level, China buys low and sells high. There is no preferential treatment for Russia .China does not invest in Russia. In fact, Russia is increasingly dependent on China, which makes it fragile.

So many handicaps that the Russian economy has and which Vladimir Putin never talks about. But his goal remains to finance the war in Ukraine, and he succeeds. As for how long this could last, Russian economist Tatiana Mikhailova, based in the United States, is straightforward: “I suppose you want to know if the Russian economy can withstand the weight of the war?”

“Unfortunately, I can tell you that Russia, in the current situation, can wage war indefinitely.”

Tatiana Mikhailova, Russian economist based in the United States

at franceinfo

“The level of military spending, which is currently in the budget, can be maintained indefinitely,” assures Tatiana Mikhailova. In summary, the Russian economy is overheating, but it is holding up. Its long-term prospects are poor, but that’s not the Kremlin’s concern.