Russian invasion|The economy paralyzed by sanctions is in danger of sinking into stagflation.
The summary is made by artificial intelligence and checked by a human.
The outlook for the Russian economy will darken in the next few years due to the labor shortage and sanctions.
A million university graduates have fled Russia since February 2022.
Fast inflation weakens the purchasing power of households, and the central bank’s monetary policy remains tight.
The Bank of Finland predicts that the Russian economy will grow by more than three percent this year, but only by one percent in the following years.
Russian the prospects for the economy in the next few years will be gloomy after the current year, predicts the Bank of Finland’s Research Institute for Emerging Economies. The labor shortage is getting worse, sanctions limiting production and rising consumer prices, i.e. inflation remains very fast.
According to several estimates, one million university graduates have fled Russia since the president Vladimir Putin launched a full-scale offensive in Ukraine in February 2022.
“Economic growth will slow down, the economy will be kept afloat by the state, and the purchasing power of households will be weakened by rapid inflation, which is maintained by the strong growth in government spending,” says an economist specializing in the Russian economy at the Bank of Finland Bluebird Parviainen.
Private consumer demand has so far been supported by above-inflation wage increases, which are needed to attract a dwindling workforce to work.
Large wage increases, on the other hand, maintain rapid inflation over time. Therefore, the central bank must keep monetary policy exceptionally tight, which in turn dampens economic activity.
In September, inflation in Russia was 9.1 percent and the central bank’s key interest rate was 19 percent.
“The probability of stagflation has increased significantly,” says Parviainen.
Stagflation is a serious disruption of the economy, in which economic growth slows down and unemployment is high, but at the same time inflation, i.e. the increase in consumer prices, accelerates.
“The supply cannot meet the demand, because Russia has a shortage of machines and equipment and skilled labor due to the sanctions. Sustainable economic growth would require an increase in productivity, which is very difficult when Russia cannot use the latest technology as a result of sanctions.”
When the state strongly increases its defense spending, it naturally increases total demand and ultimately also the gross national product. The Bank of Finland predicts that the Russian economy will grow by three and a half percent this year, but only by one percent in the next two years.
“The labor shortage is also due to the collapse of the birth rate and the increase in the death rate in the 1990s. Now it is made worse by the escape of the skilled workforce, the aging of the population, those who died in the war and the still weak continuous birth rate.”
#Russian #attack #Russian #economy #shrink #labor #shortage #worsen #predicts #Bank #Finland