WIREDGOV

Russia’s economic resilience is defying expectations, enabling the Kremlin to sustain its war efforts in Ukraine despite mounting challenges, and raising doubts about hopes for a swift resolution.

Russia regained the momentum on the battlefield in Ukraine last year. Although Russian progress remains slow and costly, the outlook for the year ahead is bleak. Ukraine’s energy system has been heavily damaged by Russian air strikes, and its forces continue to lose ground in southern Donetsk, where the heaviest fighting is taking place. 

Perhaps most importantly, political shifts in some of Kyiv’s key allies – especially the US – could result in crucial financial and military aid being substantially reduced in the year ahead. Together, these trends raise the prospect of Ukraine being forced to accept a crushing defeat after three years of heroic resistance. 

Against this lugubrious backdrop, many analysts have seized on what appears to be a rare bright spot: Russia’s faltering ‘war economy’, which – according to some – is ‘Putin’s greatest weakness’. An acute labour shortage, persistent and rising inflation caused by soaring military expenditure, and ever-tightening sanctions will – it is claimed – finally bring about an economic crisis that will force Moscow to abandon its maximalist aims in Ukraine and bring about an end to the war on terms more acceptable to Kyiv and its allies. 

Sadly, these hopes are likely to prove misplaced. Russia’s economy has confounded expectations throughout the war and, despite suffering several complications, remains well-placed to support the Kremlin’s ambitions in Ukraine and beyond. 

Dashed Hopes…

This is not the first time that Kyiv’s supporters have placed their hopes in Russia’s economy proving to be its Achilles’ heel. In the early months of the war, analysts forecast that Russia would suffer a severe and long recession that would cause living standards to slump and the state’s fiscal resources to dwindle. Moscow, it was hoped, would be forced to make an embarrassing retreat with potentially fatal consequences for President Vladimir Putin and the ruling elite. 

But these hopes were soon dashed. The imposition of capital controls, a surge in federal expenditure, and the successful reorientation of foreign trade at breakneck speed arrested the signs of economic distress observed in the first months of the war. 

Although Russia did not avoid a recession in 2022, it was much shallower than expected (GDP fell by only 1.9%) as the economy adapted to its new circumstances. Growth exceeded nearly all expectations in 2023 (3.6%), with this momentum continuing into 2024. Output is likely to have expanded by 3.6–4% last year.

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