Russia's economy faces 3 obstacles to further growth as capital, industry, and its population wither, researcher says

russia lenin communism
Demonstrators take part in a rally held by Russian Communist party to mark the Red October revolution's centenary in central Moscow, Russia November 7, 2017.REUTERS/Sergei Karpukhin
  • Russia's economy could end up looking a lot like it did in the Cold War, a researcher writes.

  • The nation is faced with three major problems that will be obstacles to economic growth.

  • Russia has practically "no chance" of developing in the coming years, the researcher added.

Russia's economy has been diminished by its invasion of Ukraine, and it could end up looking like it did at the end of the Cold War era as critical components of growth deteriorate, according to Vladislav Inozemtsev, a special advisor at the Middle East Media Research Institute.

In an article for the French journal Politique étrangère, Inozemtsev pointed to signs of weakness flashing in Moscow's economy, despite Russia's show of defiance and claims of strength as war in Ukraine drags on.

In particular, he pointed to three issues developing in Russia, which could set the nation up for a grim economic future.

Russia is becoming deindustrialized

Russia's economy is becoming "increasingly primitive," Inozemtsev said, as western companies exit the country and become unwilling to do business. Meanwhile, western machinery left in the nation is wearing out, and only has three to five years of use left.

That's created holes that are hurting key areas of Russia's economy, like the auto sector for instance, which has seen sales collapse during nearly two years of war.

Meanwhile, Russia is turning more to China for its infrastructure needs and for its supply of high-tech products as the rest of the world becomes unwilling to trade with the warring nation. At this rate, Russia could become completely dependent on China as a trade partner by the end of the decade, Imnozemtsev estimated.

That's a grim prospect for the country's economic growth outlook.

"The Russian economy therefore has no chance of developing in the years to come," Inozemtsev said, though he noted that trend wasn't yet being perceived by the majority of the public.

Russia's population is falling

Russia's population was falling before the war and it isn't likely to grow much as people look to escape the threat of going to war and a gloomy economy.

Russia's population fell by around 3 million from 2017 to 2022. The drop in population has bred a number of problems for Russia's economy as it shifts to a wartime footing, including a record shortage of workers.

"The drop in capital human resources could, in the long term, cost Russia more than the immediate financial losses caused by the current conflict," Imnozemtsev added.

Capital is on the decline

Russia is also suffering from the loss of capital as "war capitalism" – a regime that involves high military spending and heavy taxation – takes hold.

"Nationalization and confiscation of assets of foreign companies have become so attractive that attempts to take over the properties of Russian entrepreneurs considered 'not loyal enough' to the Kremlin are increasing. A massive redistribution of funds therefore seems inevitable in the coming years," Imnozemtsev said.

All that points to great difficulty faced by Russia's economy, he added. By the end of the decade, Imnozemtsev estimated that Russia's GDP could end up cratering by 10%-15%. Meanwhile, its population could plummet by as much as six million people, and the ruble could plunge around another 50% in value, Imnozemtsev said.

Other economists have sounded similar warnings for Russia's economy, though the nation itself has insisted on its resilience over the past year-and-a-half. Though the Kremlin recently admitted Russia was on the verge of collapse last year, officials in Moscow are predicting Russia's economy will grow as much as 3% this year, above 2.2% growth estimates from the International Monetary Fund.

Read the original article on Business Insider