Thread by @slantchev

Russia is in very deep trouble because its economy cannot sustain the war expenditures on the scale it needs to be able to advance for much longer. Even Moscow-based analysts now warn that 2025 would be dire indeed. But don't take my word for it. Here's an overview.

1/15

The ruble has sunk to 104 to US$. With the exception of the brief period right at the outset of the invasion, it has not been so weak since the dreary years after the collapse of the USSR. Back in 2022, the Central Bank intervened to prop the value of the ruble & it worked.

2/15

However, because of the enormous drag of the wartime economy, Nabiullina has been having to run ever harder just to stay in place. The interest rate which started climbing steadily last year has now reached 21% and is expected to go up again in December.

3/15

Inflation is expected to hit 8% to 8.5% this year according to official projections, more than double the Bank's target of 4%. The official figures, however, belie a grim reality for individual consumers, for whom inflation has gone up by 22.1% since September last year.

4/15

The RU economy is overheating due to massive spending on defense sector & CB seems unable to contain the inflation resulting from too much money chasing too few consumer products because the economy is focused on producing military hardware that gets blown up by Ukrainians.

5/15

Nabiullina asked Putin to curb access to credit. Instead, he signed a law (11/23) to forgive up to 10M rubles in unpaid debt incurred prior to 12/1/24 for anyone who signs up to fight in UA & their families. It also extends 30-day debt holiday for soldiers to 180 days.

6/15

Putin has to keep increasing compensation for military service because demand is far outstripping supply, and because he really does not want open mobilization. The state paid out $32bn (8% of its budget, or about 1.5% GDP) in soldiers and families of the dead in 2023-24.

7/15

Kremlin allocates 40% of its budget to military & plans to increase it by 27% next year. This surpasses total spending on education, healthcare, and social services (not seen since Soviet times). Deficit will be 2% of GDP with half of National Welfare Fund already drained.

8/15

Nabiullina warned that factory capacity utilization surpasses 80% and that 73% of enterprises face labor shortages (nearly double from last year). The record-low unemployment of 2.4% means that the economy is basically working at its limits.

9/15

Despite profligate spending on defense, GDP growth is down to 3.1% from 5.4% in Q1. CB forecasts that next year the economy will stagnate: GDP growth 0.5-1% & no investment. Stagflation is difficult thing to get out of, just ask US during 1970s.



10/15moscowtimes.ru/2024/11/19/nab…

The exit of Western companies, sanctions & tighter loopholes that even China enforces are squeezing RU economy. It did not happen as fast as people hoped, but it's happening faster than I thought. That's why a major demand for ceasefire is immediate removal of sanctions.

11/15

Meanwhile, Nabiullina's efforts are facing headwinds from oligarchs & industrialists because expensive credit cuts into expansion plans & ability to meet rising wage demands. Indebted firms have to rely increasingly on state subsidies to stay afloat.

12/15

The massive losses in the residential real estate sector has caused a collapse in the market for apartments in most major cities. Over 200 shopping malls are at a risk of bankruptcy and their union has asked the Kremlin for preferential loans (November 1).

13/15

The Russians are getting tired of the war. 52% want to go to peace talks (from 35% in 4/22). If you read Western media, you would think that Russia has been winning over the past 10 months. Except many Russians do not think so.

14/15

Putin might be realizing that he can't have his goals by fighting. Kursk escalation & IRBM are signals that he is maneuvering for better position & trying to scare West into pushing UA to concede.

Let's hope that our leaders do not snatch defeat from the jaws of victory.

15/15