Russia’s economy is encountering challenges that could compel President Vladimir Putin to end the ongoing war against Ukraine by 2025.
Hinder Putin's Military Ambitions
According to economist Anders Åslund, cited by Fortune.com and Ziare, recent Ukrainian intelligence has revealed Russian documents indicating increasing economic and financial pressures on the Kremlin.
Åslund’s analysis highlights the profound impact of Western sanctions and technological regression on Russia, stating that the country is heading toward a state of stagnation.
He estimates that these sanctions are reducing Russia's GDP by approximately 2% to 3% annually. Åslund warns that the deteriorating economic situation could hinder Putin's military ambitions in Ukraine.
Documents acquired by Ukrainian intelligence hint at the Kremlin's potential plans to conclude the conflict by the end of 2025. While Åslund notes that this information is not fully verifiable, he believes it is plausible given the mounting economic challenges faced by Russia.
Sanctions are Working
The sanctions have led to a phenomenon termed "hidden inflation," forcing the Russian government to dip into financial reserves to meet expenditures.
The Kremlin aimed to keep the budget deficit at 2% of GDP (around $40 billion), but as of March 2024, liquid reserves in the national fund have plummeted to $55 billion. Åslund warns that these reserves could be depleted by next year, leaving Russia in a precarious financial situation.
Another compounding factor is the technological decline stemming from sanctions, which have limited access to advanced equipment and technology. The war in Ukraine has triggered a brain drain, with many researchers and scientists leaving Russia, further undermining the country’s ability to innovate.
Additionally, the arms export sector has suffered a dramatic decline due to urgent military needs in Ukraine, leaving Putin’s war machine grappling with a severe labor shortage. Åslund estimates that Russia will spend around $190 billion on the war this year, equivalent to 10% of its GDP, placing further pressure on its budget.
A report from the Institute for Emerging Economies of the Bank of Finland predicts a dramatic slowdown in Russia's economic growth in the coming years, estimating it will drop to just 1% in 2025 and 2026, down from 3.5% this year.
