Russia's economy under sanctions and Ukraine war

The outlook for Russia's economy continues to bleak. Russia's central banks are warning of a future with major challenges.

Moscow – Déjà vu for Russia's economy? The current challenges could mean that things could become even more critical for Vladimir Putin in the future. A shortage of skilled workers, declining growth and the consequences of sanctions against Russia's economy are just some of the problems that Putin must get under control. The Russian Central Bank has outlined several scenarios and explained possible consequences for Russia's economy. One scenario is likely to set off Putin's alarm bells.

Dismal balance sheet for Russia’s economy – Central Bank outlines various scenarios

The Russian central bank basically expects that the growth of the “overheated” economy will weaken sharply next year. According to the Financial Times higher interest rates, which could be significantly higher than pre-war levels by 2027. In view of the persistent inflation, the Russian Central Bank has already had to raise interest rates to 18 percent; previously the key interest rate had remained untouched at 16 percent for several months.

The biggest problem is likely to be the shortage of skilled workers in Russia. The situation is particularly serious in the military and the arms industry. Putin has therefore already tried to persuade more Russians to take part in the war in Ukraine by increasing productivity. But many other sectors of the Russian economy are also complaining about a shortage of staff – according to the central bank, these include manufacturing, trade and agriculture.

Russia's economy struggles with sanctions and shortage of skilled workers

In combination with the sanctions, the productivity of the Russian economy could be severely affected, according to the Central Bank of Russia. The country's production capacities and labor resources are already quickly being fully exhausted, with a utilization rate of almost 80 percent, said the Central Bank's report, from which the Financial Times quoted. The deputy governor of the central bank, Alexei Zaboktin, also expressed concerns. “The available production capacities are exhausted,” he recently told reporters.

“The pace of expansion is being slowed by sanctions barriers and physical restrictions on the means of production. For this, too, the economy needs additional workers,” he said, adding that the labor shortage had “worsened considerably.”

Future of Russia's economy: In one scenario there are parallels to the global financial crisis of 2007 to 2008

In the worst case scenario, the Central Bank predicts a “global crisis.” In this case, the problems of the Russian economy will be exacerbated by a serious international crisis: an imbalance in financial markets leading to a global financial crisis and a serious crisis in relations between the United States and China.

If this scenario were to happen, it would be similar to the financial crisis of 2007-2008, and Russia's economy would also suffer. These conditions would reduce demand for Russian products due to global problems, which would cause significant damage to the Russian economy. At the same time, due to the global financial crisis, the growth rate of the Russian economy would fall and inflation could rise to as much as 15 percent. The Central Bank would then be forced to raise interest rates significantly. Tougher sanctions would also be expected. Again, it is important to emphasize that these are theories – it does not mean that this will necessarily happen.

Also positive prospects for Russia’s economy?

The central bank also presents positive prospects in other scenarios. Low inflation, a significant increase in investment and increasing productivity growth serve as the starting point. In this optimistic scenario, inflation would fall faster than in the baseline scenario, economic potential would increase and GDP would rise. However, given the Kremlin's current economic policy and the existing problems, the chances of this scenario occurring are not very high, speculates the Russian independent online media. The bell. (boy)