"Russian Economy Shows Strong Recovery in Second Half... High Possibility of War Continuation"

Gukgeum Center: "Western Sanctions Insufficient to Stop the War"

As the Russian economy continues to show a favorable recovery trend in the second half of the year, there is a growing outlook that despite the side effects of the wartime economy and weakening medium- to long-term growth drivers, the war is likely to continue. Amid accumulated fatigue from the prolonged war, recent external conditions such as the West's diverted attention due to the Middle East situation and increased upward pressure on commodity prices are creating a favorable environment for Russia.

On the 13th, the Korea Center for International Finance (KCIF) stated in its report titled "Assessment and Implications of the Russian Economic Situation" that Russia, which experienced four consecutive quarters of negative growth since its invasion of Ukraine in February last year, recorded a growth rate close to 5% in the second quarter of this year and continues to show a favorable recovery trend in the second half of the year.

Russia recorded a 3% growth rate (year-on-year) in the first quarter of last year but continued negative growth with -4.5% in the second quarter, -3.5% in the third quarter, -2.7% in the fourth quarter, and -1.8% in the first quarter of this year. However, it showed a recovery trend with a 4.9% growth rate in the second quarter of this year.

Researcher Nam Kyung-ok of KCIF explained, "Domestic demand is leading growth as production activities increase due to large-scale government spending to support military supplies, unemployment rates fall, and real wages rise, improving consumption capacity. Although the export sector continues to struggle due to Western sanctions, Russia is rapidly shifting export destinations from Europe to China, India, and others, and trade and current account balances remain in surplus due to the impact of high oil prices."

The report evaluated that Russia is performing better than expected despite Western sanctions.

According to the International Monetary Fund (IMF) forecast, government fiscal spending under the wartime economy system is driving growth, and on the surface, the Russian economy is expected to show positive growth this year (2.2%) and next year (1.1%).

However, concerns about overheating, rising inflationary pressures, and continued monetary tightening are expected to gradually slow the growth momentum.

The report explained that the Russian economy is close to full employment, with a positive output gap, and that expansionary fiscal policies ahead of next year's presidential election could strengthen inflationary pressures.

It also noted that factors such as labor population decline due to overseas migration and wartime mobilization, the impact of technology sanctions, and deterioration of fiscal soundness could act as long-term pressures on the Russian economy.

Researcher Nam said, "There is a strong view that Russia can continue the war despite the side effects of the wartime economy and weakening medium- to long-term growth drivers," adding, "While the global supply chain and inflation shocks caused by the Russia-Ukraine war will not be as severe as last year, related uncertainties remain, so it is necessary to continuously monitor future trends."

He continued, "There is a prevailing view that Western sanctions are insufficient to stop the war," adding, "The key question is whether the Russian economy can endure until political public opinion changes in the West, especially in the United States, one year before the presidential election."

[Image source=Yonhap News]

This content was produced with the assistance of AI translation services.