“This is a shock to the Russian economy”

The Russian war on Ukraine is expensive – and is getting more expensive for Kremlin chief Vladimir Putin (70). As the Institute for the Study of War (ISW) reports, the war and sanctions will have “long-term effects” on the Russian economy.

The Russian economy ministry said Thursday that the Russian economy shrank by 5 percent year-on-year in September, more than the 4 percent recorded in the previous month. Financial experts told Reuters in September that the Kremlin will face a budget deficit that will “drain Moscow’s reserves to their lowest level in years”.

From high spending on the war, recruits and the defense industry, to Western sanctions and hundreds of thousands of workers who have already left the country, the reasons for Russia’s ailing economy are many.

Refugee Russians can be replaced “impossibly”

According to Western government sources, an estimated 400,000 Russians have fled their homes as a result of the partial mobilization. Then there are the 300,000 reservists and the 82,000 troops already deployed to the front. All in all a significant loss of working people.

If one assumes that 700,000 Russians alone have stopped working since the partial mobilization, this represents a loss of about one percent of the Russian workforce. That doesn’t sound like much, but as Sergei Guriev (51), Russian economist at the Instituts d’études politiques in Paris and former chief economist at the European Bank for Reconstruction and Development, explains to Blick: “This is a shock to the Russian economy. “

Because that one percent is most likely highly educated and predominantly male – two factors that make an easy replacement “impossible” according to the scientist. “In addition, somehow these people are not going to return to their positions.” This will cause a long-lasting shock to the Russian economy, Guriev predicts.

Guido Cozzi, professor of macroeconomics at the University of St. Gallen, also explains: “Highly qualified people seek qualified jobs abroad, leading to a significant brain drain, which will negatively affect the productivity of the Russian economy for coming years.” This could have a negative effect on the Russian economy for years.

War costs put a damper on the Russian economy

And the cost of the war is also causing problems for the Russian economy. As the ISW writes in its latest report, payments to the mobilized men alone will cost between 900 billion and three trillion rubles (14 to 49 billion Swiss francs) in the next six months. However, this amount only takes into account the approximately 300,000 reservists – the volunteers and professional soldiers are not included. Here, the “ISW” estimates the cost to be at least $1.2 million per month.

The financial incentives offered to young Russians going to war against Ukraine also weigh heavily on the state budget. So strong that some mobilized men are no longer paid. That is why there is now a group of mobilized people on strike. «Our state refuses to pay us the amount of 195 thousand rubles (about 3200 francs) promised to us by our president. Why then should we go to war for this state and leave our families without support?” A social and political problem seems to arise from this.

Oleg Itskhoki, 39, a Russian-American economist at the University of California, explains to Blick: “The Russian government is not fulfilling all its promises and will not be able to make a large part of the payments to the mobilization.” But he does not see social unrest in Russia (yet) in the near future. The government’s financial buffer and internal repression are too great. And: “If Russians are willing to sacrifice their lives for the war, why protest because of financial difficulties?”