Russia’s economy is facing significant challenges, according to the International Monetary Fund’s managing director Kristalina Georgieva. High military spending has boosted economic growth in recent years, but the Russian economy relies heavily on state-funded arms and ammunition production, which masks problems affecting living standards for Russians.
Georgieva spoke to CNBC about the IMF’s forecast of 2.6% GDP growth for Russia this year, expressing concern that military production is increasing while consumption is decreasing. This creates a situation similar to what the Soviet Union experienced with high production and low consumption. Despite this, the Russian economy rebounded sharply from a slump in 2022, resulting in 3.6% growth in 2023 after a 1.2% contraction the previous year. However, Russia-based economists have noted that the poor quality of this economic growth offers limited benefit to the population, as missiles and shells may contribute to higher GDP but do not improve living standards.
In addition to these challenges, Georgieva pointed out that Russia’s war economy is facing tough times due to the outflow of people and reduced access to technology as a result of sanctions. Despite seemingly positive GDP growth forecasts, Georgieva suggested that there is a bigger, less positive story behind it.