Russian economy strains: Inflation and labor shortages rise
The Russian economy is grappling with significant problems. Inflation is high, interest rates are elevated, and an ongoing labor force shortage exists. Three years of war with Ukraine have seriously affected Moscow's economic landscape.
The Russian economy faces substantial challenges three years after invading Ukraine, primarily inflation, a labor force shortage, and high interest rates. While military spending contributes to GDP growth, it does not lead to long-term development.
According to Rosstat data, Russia's GDP in 2024 increased by 4.1%, which Prime Minister Mikhail Mishustin described as a "historic record." However, as the independent portal Meduza notes, this growth is misleading because it does not account for inflation. Military spending made up almost one-third of the federal budget, contributing to GDP growth.
The Russian economy: Civil sector problems
Expert Iwona Wiśniewska from the Polish Center for Eastern Studies highlights that the civilian sector is not meeting market needs. Production outside the military sector is stagnant, and private investments are nearly at a standstill. High interest rates, which have reached 21%, restrict investment opportunities and further hinder economic development.
Russia is struggling with a labor force shortage. Officially, it is about 2 million people, but it may actually be as much as 3 million higher. Companies are raising wages to attract workers, but this does not solve the problem.
Retirees and public sector workers are particularly affected by this situation, as their incomes are not keeping up with the rising cost of living.
Sanctions imposed on Russia by the West have made it difficult to access Western goods and technologies. As a result, Russians are increasingly turning to Chinese products. Despite the sanctions, Russia continues to find ways to circumvent them.
Iwona Wiśniewska from the Center for Eastern Studies told PAP that the activity of military plants heavily influences the Russian economy. "The government pays them huge amounts of money, creating economic demand. However, the civilian sector is unable to meet consumer needs," Wiśniewska emphasized.
The independent Russian portal Meduza also noted that nominal GDP does not account for inflation and does not reflect the real economic situation in the country. Last year, state spending on the military was unprecedented for post-Soviet Russia and accounted for almost one-third of the federal budget.
The Central Bank of the Russian Federation struggles to manage inflation, and high interest rates limit investment possibilities. Meduza pointed out that GDP growth during wartime is not unusual; similar trends have been observed in other countries during armed conflicts.
