Russian economy struggles to keep pace with war spending

Russia’s economy is showing signs of a recession as the war in Ukraine continues, according to a new report from LSE IDEAS at the London School of Economics and Political Science.

The study, produced with Ukrainian Industry Expertise for the PeaceRep programme, finds that Russia’s economy is roughly 1.5% smaller today than it was in February 2022.

The report challenges perceptions of Russia as economically resilient, highlighting limited sources of government deficit financing and growing inflationary pressures.

Authors of the study say that inflation is likely about double official figures, which leads to a substantial downgrade in reported GDP growth.

The report also notes that Russia has depleted reserves in its sovereign wealth fund to fund the war, while recent oil sanctions further reduce its ability to generate external revenue.

This has widened the gap in living standards, benefiting a small minority while the majority see little improvement.

Dr. Volodymyr Vlasiuk, director of Ukrainian Industry Expertise, said that the report exposes the heavy economic cost of the war and the limits of Russia’s military Keynesian approach.

Dr. Luke Cooper, director of PeaceRep’s Ukraine Programme, emphasized that sanctions are increasingly constraining Russia’s war financing and may influence shifts in its military strategy.

He added that the Kremlin’s adjustments in territorial demands could reflect recognition of these economic pressures.