British intelligence reported that Russia's economy could "overheat" due to rising military spending. In a commentary to a journalist of UNN, economic experts Yuriy Havrylechko and Igor Garbaruk explained the principle of this concept and the possible risks for Ukraine due to the decline in living standards in Russia.
"Overheating of the economy is usually a situation where growth expectations are higher than the actual current situation, so prices for goods and services start to rise significantly in the expectation that the future situation will be more favorable than the previous one," Havrylechko said.
When asked how fast this process can develop in Russia, Mr. Gavrilechko replied: "When it comes to putting the economy on a war footing and overheating because of this, there is no clear answer, because on the one hand, there is an absolutely natural process of increasing effective demand within the country due to the fact that more people will be involved in sufficiently high-tech production and will receive above-average wages. On the other hand, the production of consumer goods within the country, multiplied by many sanctioned trade restrictions, does not allow this same demand to be quickly satisfied.
росія не голодує: Буданов про необхідність посилити санкції проти рф12.01.24, 12:16
According to him, there is more money than goods in certain regions and sectors, and this causes prices to rise. "After all, those who sell and produce it will focus on a more solvent population. Accordingly, this widens the gaps in income between different categories of people. However, an increase in the number of poor people, given that Russia is now mobilizing contract soldiers, which means that they are also paid normal money for the war, can free up a certain amount of human resources to join the armed forces. So, on the one hand, the standard of living may decline due to the overheating of the economy, but there is a risk for us that more Russians will join the army, hoping to make money on it," Havrylechko said.
Ihor Garbaruk, an expert in international economics, also commented on the statement by British intelligence that the Russian economy may "overheat" due to the growth of military spending. He notes that Russia may simply transfer more resources to the military-industrial sector, weakening all other sectors of the economy.
"You can't be full of shells. The country needs to be supplied with heat, the country needs to be supplied with electricity, water, etc. Therefore, all the areas that will be immobilized in order to simply increase the production of ammunition or weapons are the key risk. These distortions in the economy can lead to shifts that they will not be able to reverse later. That is, they will pass a certain point of no return, and this will lead to an even greater collapse of the economy," Garbaruk said.