The Russian economy has shifted dramatically towards a war footing, driven almost entirely by the ongoing conflict in Ukraine. With approximately 40% of the government’s budget now allocated to military expenses, defense spending is expected to surpass 10% of GDP in 2023, a stark contrast to just 2.3% for the UK. This massive surge in military production and spending has temporarily boosted economic growth, even as Western sanctions persist and pressure the broader economy.

The increase in military expenditure covers everything from military pay and ammunition to tanks and compensation for casualties. The military-industrial sector is operating at full capacity, a stark indicator of the war’s role as the main driver of Russia’s economic growth. Additionally, other industrial sectors such as construction and manufacturing of military goods have seen significant boosts due to the war effort, contributing further to this skewed economic growth.

However, this form of military Keynesianism comes at a significant cost to other vital areas of the Russian economy. Civilian sectors like healthcare, education, and infrastructure have suffered due to redirected funding, creating severe imbalances. These sectors are critical for long-term societal well-being and development, and their neglect could have dire consequences for Russia’s future stability and growth.

Analysts are increasingly warning that this overheated, militarized economy is unsustainable in the long run. The shift towards a “war economy” has stifled innovation and left Russia overly dependent on hydrocarbon revenues, while also exacerbating labor shortages. The focus on military production diverts resources from other essential industries and hampers the country’s ability to adapt to future economic challenges.

Moreover, there are growing concerns that even if the war in Ukraine were to end, the entrenched military-industrial complex may push Russia to seek other conflicts to justify continued high levels of military spending. The perpetuation of a militarized economy could lead to a cycle of ongoing conflicts, driven by vested interests within the military-industrial sector that benefit from sustained military engagement.

In summary, while the shift to a “war economy” has temporarily propped up Russian economic growth, it has created deep structural imbalances. The military-industrial juggernaut may have vested interests in perpetuating conflicts even after Ukraine, to sustain itself. The long-term sustainability of this economic model is highly questionable, raising critical issues about the future direction of Russia’s economy and its potential impact on global stability.

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