Russia|Russia’s military economy has begun to cough. The interest rate has had to be raised to 18 percent and the services have become more expensive by more than 11 percent per year. “The current growth rate can no longer continue,” says Iikka Korhonen, head of the Bank of Finland’s BOFIT research institute.
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Russia’s inflation rate has accelerated to 9.1 percent.
The prices of services increased by 11.4 percent per year.
Pumping public money into the economy has led to a rapid rise in wages.
At the same time, Russia’s economy has diversified strongly, the military industry is doing well.
Russian the economy increasing military spending has made the economy grow at a fast pace, but now the machine is already starting to freeze.
Russia’s annual inflation rate, i.e. the rise in prices, has accelerated to 9.1 percent from 8.6 percent in June.
The prices of services have risen even more in Russia, 11.4 percent per year.
Pumping public money into the economy has led to a rapid rise in wages.
“Everyone who belongs to the upper middle class enjoys a really good life,” said the Moscow-based investor and entrepreneur Sergei Ishkov for the Financial Times in July.
When demand has been greater than production, prices have also risen rapidly. Not even high interest rates have been able to prevent that.
The Central Bank of Russia’s key interest rate is already 18 percent.
Finland Director of the Bank’s Institute for Research on Emerging Economies (BOFIT). Iikka Korhonen says that an increasingly large share of Russia’s public expenditure is spent on the military industry and warfare.
“In this year’s budget, the amount was six percent of the gross national product. In addition, two percent of GDP is spent on internal security, the Russian Security Service (FSB) and the like. Together, these are already significant.”
For comparison, this year Finland spends more than 2.5 percent of its gross domestic product on defense spending. The basic target for NATO countries is two percent, in Estonia and Poland the ratio is already over three percent.
According to Korhonen, the Russian economy is strongly differentiated so that the part of the factory industry that is linked to the production of war material is doing well.
“But for others, growth is slow or non-existent.”
I demand and supply imbalance occurs, according to Korhonen, especially in industries that make war materials and those close to them, when production cannot be raised to meet demand.
At the same time, more than a million workers have left productive jobs in Russia, says Korhonen.
“Most of them are men, and most of them stay at the front.”
A total of around 800,000 people have also left Russia.
Although many of them have returned to their homeland, hundreds of thousands have still left permanently.
“And when demand is increased with public spending, there are not enough people in Russia to do those jobs.”
The workforce in turn, scarcity has raised wages. According to Korhonen, salaries in the military industry and information technology sectors have risen by more than 20 percent per year.
Adjusted for inflation, Russia’s real wages also rose by 8-9 percent from a year ago in late spring.
“The current growth rate can no longer continue. In June, growth slowed down clearly in many sectors,” says Korhonen.
For example, in the energy and mining industry, production has already contracted for several months compared to a year ago.
Korhonen according to the assessment, Russia wants the situation caused by the war in Ukraine to end, for example, so that Donald Trump is elected the next president of the United States. Then Russia and the United States go to negotiate on how to reconcile Russia’s war of aggression against Ukraine.
Russia’s economy is particularly dependent on its export revenues from oil and natural gas. Oil is the most important of these.
“Exactly two-thirds of the export earnings come from hydrocarbons, mostly from crude oil and natural gas.”
About a third of the Russian Federation’s tax revenue comes directly from the energy sector, says Korhonen.
The technology of the Moscow metro was renewed in August 2024 at the Potapovo station.
On the other in the quarter, i.e. April–June, Russia’s gross domestic product grew by four percent, while in the first quarter of the year the growth reached 5.4 percent.
Although economic growth of four percent still means good growth, the reading remains the weakest in Russia since the beginning of 2023, reported news agency Reuters on Sunday.
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