According to a recent intelligence review by the British Ministry of Defence, Russia's economy is facing the risk of overheating due to its transition to a war footing.
This analysis, reported by European Pravda and Ukraїnska Pravda on November 6, 2023, highlights the potential economic fallout as Russia increases its military spending against Ukraine.
The intelligence review points to rising consumer prices in Russia, especially for essentials like food and fuel, as a key factor driving inflation.
This increase in inflation is expected to significantly boost Russia's war financing, with predictions indicating that the situation will likely exacerbate in the coming year.
Analysts suggest that the combination of heightened defense spending and ongoing strain on the already declining labor market in Russia could lead to the economy overheating.
This scenario would mean that inflation in Russia is set to remain above the targeted 4% in 2024, consequently leading to reduced real public spending.
Social protection, an area where spending has been growing faster than inflation, is expected to be particularly impacted.
The reorientation of the Russian economy towards primarily financing the war is highlighted in the review as a critical issue. In response to these economic challenges, the Central Bank of the Russian Federation is anticipated to maintain high interest rates until 2024.
Such a move would likely increase the cost of loans for Russian consumers and also affect the Russian government's debt service costs.
This analysis by British intelligence underscores the broader economic implications of Russia's military actions in Ukraine, predicting a challenging period ahead for the Russian economy as it grapples with the demands of sustained military engagement and its domestic consequences.