Thu Sep 12 05:55:55 UTC 2024: ## Russia Faces Stagflation as War Economy Strains Resources

**MOSCOW** – As Russia continues its military offensive in Ukraine, the country is grappling with soaring prices and a growing risk of stagflation, according to experts. While the Kremlin has managed to defy expectations of economic collapse, the heavy spending on the war effort and the exodus of skilled workers are creating a strain on the economy.

Despite record low unemployment and high consumer confidence, Russia’s Central Bank has warned of a potential stagflation scenario, where low growth is accompanied by high inflation. This could be triggered by a shortage of labor resources, slowing down economic growth despite government efforts to stimulate demand.

“There is a high probability of a stagflation scenario in 2025 and the years after,” said Ruben Enikolopov, a Russian professor at the Barcelona School of Economics. “It’s not a certainty, but high likelihood.”

The Central Bank has already raised interest rates to 18%, and some analysts expect them to reach a record 20% before the end of the year. This could further hinder economic growth by making borrowing more expensive for businesses.

While President Vladimir Putin has touted military spending as a driver of growth, experts are concerned about the long-term consequences of the country’s militarized economy.

“The economy is degrading, it is de-modernizing,” said Vladislav Inozemtsev, co-founder of the Center for Analysis and Strategies in Europe. “They are switching to Soviet models, Soviet standards, Soviet approaches.”

Despite these concerns, Russia has ample resources to sustain its war effort for several years. The country has significant reserves not frozen by the West and a low debt-to-GDP ratio. However, the long-term economic impact of the war and sanctions could have significant consequences.

“They will not stop the war because they run out of materials any time soon,” said Enikolopov. “But for several years, they definitely have the money and resources to keep it going with the same intensity as now.”

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