According to Russia’s official statistics agency, production of vehicles, trailers and semi-trailers was more than 50 per cent higher in June than in the same month of 2022. Meanwhile, the central bank reports that, in the first quarter of this year, shortages of workers at industrial enterprises were at their most acute since records began in 1998. The central bank also estimates annualised inflation over the past three months at 7.6 per cent, well above its 4 per cent a year target.Naturally, we have to treat official economic data in President Vladimir Putin’s Russia with considerable caution. But the picture painted by these three indicators is probably not far from the truth. Eighteen months after its full-scale invasion of Ukraine, Russia displays many classic symptoms of a wartime economy, such as inflation, labour shortages, rising government expenditure and deficit financing.
For Kyiv and its western supporters, the question is whether the pressures on the Russian economy will become so intense that, at some point in the future, they will derail the Kremlin’s annexationist war in Ukraine. Western sanctions are undoubtedly compounding these pressures, especially by cutting Russia’s oil and gas export revenues. However, Kremlin policymakers still have measures available to sustain the militarised economy.
It would be possible, for example, to increase withdrawals from Russia’s National Welfare Fund, a kind of rainy-day reserve of liquid assets, including gold and Chinese renminbi. The authorities could also expand domestic bond issuance.