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- Russia's economy is in for the "snare of perpetual war," the Carnegie Endowment said.
- That comes as the Kremlin plans to dial up its military budget for 2024.
- But spending even more on the military could set up the economy for high inflation and a deteriorating quality of life.
Russia is signaling to the world that it's preparing for a prolonged war in Ukraine – and that could set up the economy for high inflation and a deteriorating quality of life.
According to the Carnegie Endowment for International Peace, that grim future is baked into the Kremlin's proposed budget for 2024, wherein the government plans to dial up military spending to a record 6% of the nation's GDP. That's well-above the current military budget, which encompasses 3.9% of Russia's GDP.
"The record defense spending shows that the Kremlin has no intention of ending its war against Ukraine anytime soon: on the contrary. Even if the fighting becomes less intense or the conflict becomes frozen, the money will go toward replenish Russia's depleted military arsenals," the think tank said in a note last week.
The rapid pace of spending stems from Russia's attempts to keep up with rising military costs, researchers said, suggesting the industry has become less efficient.
Russia's defense sector is dependent on imports, which have gotten more expensive in the backdrop of Western sanctions and a weaker ruble.
And while some of Russia's defense-related industries have expanded over the past year, the nation's productivity is unlikely to improve amid limited access to Western technology sanctions and a record shortage of workers.
A wartime economy is also likely to weigh heavily on growth:
"In addition, spending that is so skewed toward military and social needs can only be sustainable if the state is at war. A wartime economy dependent on imports is destined for high inflation, which means that interest rates will likely remain high. This, in turn, poses a risk to investment levels," researchers said. "By staking everything on rising military expenditure, the Kremlin is forcing the economy into the snare of perpetual war."
That leaves Russia with one of two futures: it continues to finance its war in Ukraine while living standards deteriorate, or it reduces military spending, which could lead to a "significant structural shock."
"Either way, it will be ordinary Russians who pay the price," the think-tank added.
Other experts have warned of trouble brewing ahead for Russia's economy as war continues to rage in Ukraine. Russia could even become a failed state within the next decade as its economy flounders, according to experts surveyed by the Atlantic Council.