The rapid development of the Russian economy, which an explosion in the military-industrial complex has propelled, is deemed unsustainable by the judgement of experts from the Vienna Institute for International Economic Studies. Currently, it is operating at its maximum capacity and exhibiting growing indications of overheating, according to a statement released on January 30 by an analytical centre specialising in Eastern European studies.
According to analysts from WIIW, the Russian economy expanded by 3.5% in 2023, but merely 1.5% is anticipated for economic development in Russia this year. Analysts cited significant interest rate increases by the Central Bank of Russia to 16% and high inflation as contributing factors.
War spending is like a drug for the economy
Russia’s reliance on the war’s continuation is growing. Huge expenditures on it have a drug-like effect on the economy, according to Vasily Astrov, a WIIW expert on Russia. According to the institute’s report, approximately 29% of Russia’s federal budget will be devoted to military expenditures in 2024.
Furthermore, the Austrian Institute reduced its projection for Ukraine’s economic development. This indicator may reach 3% this year, 1.2 percentage points less than WIIW analysts had anticipated. They referenced the potential outcome of the US presidential elections in favour of Donald Trump, which further complicates the outlook for Western financial aid to Ukraine as it defends itself against a Russian invasion.
The Central Bank of Russia raised the key rate to 16 per cent
The Central Bank of Russia increased the key rate by 100 basis points to 16.00% annually in mid-December. High inflationary pressures persist at present. It is anticipated that annual inflation will approach the upper limit of the projected range of 7.0–7.5% by the conclusion of 2023. At the same time, the Central Bank’s press service reported that, according to the Bank of Russia’s estimate, GDP growth in 2023 will surpass 3% and surpass the October forecast.
The Bank of Russia projects that annual inflation will decline to 4.0–4.5% in 2024 and hover around 4% thereafter. To contain inflation, the Bank of Russia has implemented a phased considerable increase in the key rate over the past half-year. The Central Bank of Russia increased it to 15% at the end of October, 13% in mid-September, 12% in August, and 8.5% in July.
