Signs the Russian economy is struggling

(AP Photo/Alexander Zemlianichenko, File)

Earlier this month the Russian central bank warned that inflation may be on the rise again.

Russia’s central bank sounded alarms on the economy Friday as the falling ruble and a record labor shortage add inflationary pressures.

Policymakers kept the benchmark interest rate steady at 7.5%, where it has been since September, but signaled an increase may be coming soon…

“Accelerating fiscal spending, deteriorating terms of foreign trade and the situation in the labor market remain pro-inflationary risk drivers,” the central bank said Friday, noting that inflation risks are leaning even more to the upside.

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In another story, Insider suggested part of what is driving inflation are the $60,000 payments made to the widows of dead Wagner fighter. There are at least 20,000 of those in just the last few months which means a lot of cash quickly being pumped into the economy.

Today the Russian ruble hit a 15-month low against the dollar and it’s expected to continue its decline.

The Russian rouble tumbled past 89 against the dollar for the first time in more than 15 months on Friday, weighed down by domestic political risk concerns after an aborted armed mutiny over the weekend, and lacking any support drivers…

“The rouble continues to crumble,” Alor Broker said in a note. “It lost another 1.4% in value yesterday, despite stabilising oil. The target for the dollar-rouble pair of 90 is approaching and is likely to be reached.”

In addition, Russia is struggling with a labor shortage caused by a) the mobilization of 300,000 men of working age for the war effort and b) the flight of as many as a million men from the country to avoid the mobilization. The war itself is now the focus of the Russian economy which will create its own problems.

“The problem is that the military-industrial complex in Russia has never been able to convert its know-how into some civilian areas. This means that the imbalance will grow and a “bubble” will inflate around the military-industrial complex,”  Alexandra Prokopenko predicts.

“Everything will ‘shrink’ in civilian areas because all the resources will flow into the military sector. This has nothing to do with normal growth. Therefore, in the short term, the sanctions have failed, as they are called, to bring down such a beast as the Russian economy. But in the long term, it is deeply ill.”

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Today, Time magazine published a piece today by a pair of Yale professors who agree that Putin’s “cannibalization of Russian economic” is catching up with him.

He has been burning the living room furniture to fuel his battles in Ukraine, but that is now starting to backfire amidst a deafening silence and dearth of public support…

Putin has levied draconian “windfall taxes” on basically anything that moves. Many thought last year’s record $1.25 trillion ruble windfall tax on Gazprom and certain other Russian state owned businesses was a one-time occurrence, but Putin has only doubled down and ordered more windfall taxes in the months since, raising trillions of rubles more from companies and oligarchs alike. Likewise, first Putin resorted to levying onerous taxes on both companies and people leaving Russia after the invasion before he dropped all pretense and just started indiscriminately seizing money and property instead.

Similarly, Putin has abandoned all pretense of responsible fiscal policy, running record budget deficits, printing record amounts of money out of thin air, forcing Russian banks and individuals to buy near-worthless Russian debt, and drawing down Russia’s hundreds of billions in sovereign wealth funds, mortgaging away Russia’s future. No wonder disenchanted elites such as oligarch Oleg Deripaska are reduced to complaining to the press while across Russia, labor strikes are taking place with increasing frequency in a throwback to 1917 amidst already disastrous labor shortages

For over a year, we have been saying that the Russian economy was imploding despite claims of Russia’s economic resilience. That resilience is nothing but a Potemkin façade, sustained not through genuine economic productivity but rather through shaking down the entire country for pennies to direct towards war.

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Rising interest rates, labor shortage, a sinking currency, sanctions and really no hope of a return to the pre-invasion normal anytime soon. Then on top of that you add the challenge to Putin’s authority by his own generals and he looks less like a strongman and more like a desperate figure pretending everything is okay while the house is on fire.

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