How long can Putin afford to wage war in Ukraine? | DW News

Summary

In this insightful discussion, Alexander Peno from the Carnegie Russia Eurasia Center analyzes Russia's economic situation during the ongoing conflict in Ukraine. He discusses the initial shock of the invasion, the transformation into a war economy, and the challenges of managing the Russian economy under sanctions. Peno highlights the dilemma of balancing war expenditures, social welfare, and inflation, and the growing dependency on China. He also touches on the impact of sanctions on technology and productivity, the paradoxical improvement in living standards for some, and the potential long-term economic consequences for Russia.

Takeaways

• 😐 The Russian economy was in a relatively stable state before the invasion of Ukraine, recovering from the effects of the COVID-19 pandemic.
• 🤔 There was a significant disconnect between the perceptions of Russian insiders and outsiders regarding the likelihood of war, with insiders initially dismissing the possibility.
• 😮 The Russian government and central bank were unprepared for the invasion and had to quickly shift to crisis management, implementing measures to protect the economy from sanctions.
• 💡 Russia has faced four major crises in the last 15 years, with two being sanctions-related, showing the country's frequent encounters with economic instability.
• 📉 The Russian economy is currently stable but is showing signs of strain, with high inflation and a reliance on state spending, which may not be sustainable in the long term.
• 💰 The Russian government's spending on the war effort is significant, with military expenditures projected to be around 8% of GDP in 2024, a historical high for modern Russia.
• 🔄 Russia has found new buyers for its energy resources in countries like China, India, and Turkey, but this has also led to increased dependency on these nations, particularly China.
• 🛠️ The technology sector in Russia is suffering due to a lack of access to Western technology, forcing businesses to rely on Chinese vendors or alternative, less efficient solutions.
• 📉 There is a growing anti-Western sentiment in Russia, which could complicate future relations and cooperation with the West, even after the war ends.
• 💼 The business community in Russia is not happy with the current situation, and there is a sense of being stuck in survival mode rather than planning for the future.
• 🕊️ Despite the ongoing war, there is a temporary improvement in living standards for some Russians, particularly those in lower income brackets, due to increased state spending.

Q & A

What was the economic situation in Russia before the invasion of Ukraine?

Before the invasion, Russia's economy was in a good state, recovering from the effects of COVID-19. It was growing and seemed stable, with the main risks being external factors such as pandemic resurgences or economic effects from advanced economies.

How did Alexander Peno perceive the possibility of war before the invasion?

Alexander Peno, working as an advisor for the central bank in Moscow, did not believe that a war would happen. He thought it would be economically irrational and detrimental to the well-being of the people, and that it was more of a bluff than a real possibility.

What was the immediate reaction within Russia after the invasion?

The initial reaction was shock. Many people, including those working in the central bank, were terrified and felt devastated. There was no prior meeting or announcement by Putin about the invasion, so the news was unexpected.

How did the Russian government and central bank respond to the sanctions?

They began working as anti-crisis managers, a role they had played before. Measures included blocking Russian reserves, banning non-residents from withdrawing liquid assets, and implementing defense measures for the economy, effectively putting the economy into an artificial coma.

What are the two opposing viewpoints on Russia's current economic state?

One viewpoint is that Russia is on the brink of collapse due to the war and sanctions. The other viewpoint is that Russia has never been stronger, with growth rates and Western sanctions bowing the economy.

What is Alexander Peno's stance on the debate about Russia's economic state?

Peno believes the reality is more complicated and lies somewhere in the middle. Russia's economy is large and rigid, making it difficult to collapse quickly. It is currently performing well due to recovery growth and high fiscal spending, but this growth is based on export revenues and could change if spending decreases.

What is the primary reason for inflation in Russia according to the transcript?

The primary reason for inflation in Russia is state spending, particularly on the war. This spending is causing a trade-off for policymakers between financing the war, maintaining people's well-being, and keeping inflation low.

How has Russia's dependency on China grown due to the war?

Russia's dependency on China has grown as it has found new buyers for its energy resources in China, India, and Turkey. However, this has also led to a shift in power dynamics, with Russia becoming the junior partner in the relationship.

What are some of the technological challenges Russia is facing due to sanctions?

Russia is facing challenges with accessing technology for offshore gas and oil development, AI, and biomedical technologies. It is struggling to get hardware and software, switching from Western companies to Chinese vendors, and facing difficulties with payments and transactions due to sanctions.

How is the current situation affecting the Russian business community and bureaucrats?

The business community and bureaucrats are not happy with the current situation. There is a sense of being offended and acting in a retaliation mood. Some feel like fatalists, dealing with the situation as it is without knowing how to deal with each other in the future.

What is the impact of the war on the Russian labor market?

The war has led to a historically low unemployment rate of 2.8%, indicating a lack of available workers. This has forced employers to pay more to retain their employees. However, there is competition for labor between the army, the military industry complex, and the rest of the economy.

How is the war affecting the perception of wealth distribution in Russia?

There is a change in people's attitude towards wealth distribution. For the first time since the 1990s, people from lower income strata feel more rich and happy, believing that the distribution of wealth is fairer than before.

What challenges will Russia face in the midterm due to the war?

In the midterm, Russia will face challenges such as decreasing living standards due to inflation, less infrastructure development due to rising construction costs, and a growing number of accidents due to underfinancing and difficulties in finding parts for the industry.

Outlines

00:00

🏛️ Economic Impact of War on Russia

This paragraph discusses the economic situation in Russia before and after the invasion of Ukraine. Alexander Peno, from the Carnegie Russia Eurasia Center, shares his insights as a former advisor to Russia's central bank. He describes the initial disbelief among Russian insiders about the possibility of war and the subsequent shock when sanctions hit. The Russian government and central bank quickly shifted into anti-crisis management mode, implementing measures to protect the economy from the immediate impacts of sanctions. The discussion highlights the disconnect between the Russian elite's perception of sanctions and the underlying reasons for their imposition, emphasizing the short-term stability but potential long-term consequences for the Russian economy.

05:02

📊 Divergent Views on Russia's Economic Resilience

The second paragraph explores the contrasting opinions on Russia's economic state, ranging from imminent collapse to unprecedented strength, focusing on growth rates and the effects of Western sanctions. Alexander Peno explains the complexity of the situation, noting that the Russian economy is large and not easily destroyed. He mentions the economy's performance, driven by export revenues and high government spending, which has led to a growth rate of 3.6% in 2023. However, he warns that this growth is unsustainable without continued high spending, which in turn fuels inflation. The primary challenge for Russian authorities is balancing the costs of war, maintaining well-being, and controlling inflation, a 'trilemma' that Putin must navigate.

10:04

🤝 Russia's Shift Towards China and India

This paragraph delves into Russia's economic dependency on China and the implications of this growing relationship. Despite finding new buyers for its energy resources in China, India, and Turkey, Russia is becoming the junior partner, which could affect its future economic and political power dynamics. Peno discusses the benefits China gains from this relationship, including access to cheap energy and resources, and the challenges Russia faces as it becomes more dependent on China for both energy sales and technological imports. The conversation also touches on the rapid increase of Chinese brands in the Russian market and the difficulties this presents for domestic producers.

15:05

🛠️ Impact of Sanctions on Technology and Business

The fourth paragraph examines the impact of Western sanctions on Russia's technology sector and the broader economy. With limited access to Western technology, Russia is struggling to develop offshore gas and oil, and its AI and biomedical technology sectors are at risk of falling behind. Russian businesses are forced to rely on less reliable solutions and third-country proxies, which are vulnerable to being traced and banned by sanctions. The conversation also reveals a lack of satisfaction among the Russian business community with the current situation, as well as the challenges of maintaining academic and scientific cooperation in the face of increasing anti-Western sentiment and isolation.

20:06

🧩 Russia's Economic Challenges and Brain Drain

In this paragraph, the discussion turns to the challenges Russia faces in terms of academic cooperation and the brain drain it is experiencing. The shift towards China and India has not been without issues, as there are concerns about collaboration with these countries as well. The war has led to a need for more 'Russia watchers' and experts in Chinese and Indian affairs, but the pool of such experts is limited. Additionally, the war has affected the labor market, with unemployment low and wages in the defense sector high, but this situation is precarious and could change rapidly once the war ends.

25:07

💡 Unemployment and Labor Market Tensions

The sixth paragraph focuses on the current state of Russia's labor market, which is experiencing low unemployment but high competition for labor. The military, military industry, and the rest of the economy are all vying for a limited workforce, leading to shortages and increased wages. However, this situation is unsustainable, and the speaker predicts that the post-war period will bring economic challenges, including a decrease in living standards and a potential increase in industrial accidents due to underfinancing and sanctions.

🛤️ Infrastructure and Social Spending in Russia

The final paragraph discusses the effects of the war on infrastructure development and social spending in Russia. Despite the war, social spending has not been cut and has even accelerated, leading to a perception of increased wealth among lower-income groups. However, this trend is likely to reverse as the war continues, with living standards expected to decrease moderately due to inflation. The speaker suggests that Putin will likely blame the West and sanctions for the economic downturn, and Russia is in a survival mode, focusing on short-term successes rather than long-term planning.

Keywords

💡Economic sanctions

Economic sanctions refer to measures imposed on a country, typically by other countries or international organizations, to coerce the targeted country to alter certain behaviors or policies. In the video, the discussion revolves around the impact of Western sanctions on Russia's economy following its invasion of Ukraine, illustrating the economic isolation and challenges Russia faces due to these punitive measures.

💡War economy

A war economy is an economic system that is geared towards supporting a nation's war efforts, often characterized by increased government spending on military production and a shift in resource allocation. The script describes Russia's transformation into a war economy, emphasizing the shock and the subsequent adaptation by the Russian government and Central Bank to manage the economic fallout of the conflict.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video mentions inflation as a significant challenge for Russia, resulting from state spending on the war and the impact of economic sanctions, which have led to increased costs for consumers and businesses.

💡Energy resources

Energy resources are natural materials that can be used to produce energy, such as oil, natural gas, and coal. The script discusses Russia's reliance on exporting energy resources, particularly to new buyers like China and India, as a result of sanctions from Western countries. This shift in trade dynamics has implications for Russia's economic dependency and geopolitical relationships.

💡Productivity

Productivity refers to the efficiency with which goods or services are produced, often measured as the ratio of outputs to inputs. The video script notes that while wages and inflation are growing in Russia, productivity is not, indicating a potential long-term economic issue where increased costs do not correspond to increased efficiency or output.

💡Technological sanctions

Technological sanctions are restrictions placed on the transfer of technology, including hardware and software, to a specific country. The script describes how technological sanctions have affected Russia's ability to develop in areas such as offshore gas and oil exploration, AI, and biomedical technologies, forcing the country to seek alternatives that may be less efficient or more costly.

💡Dependency on China

Dependency on China in the context of the video refers to Russia's increasing reliance on China for trade, particularly for the sale of energy resources and the import of technology and goods. This dependency is growing as a result of sanctions from Western countries and has implications for Russia's economic and geopolitical leverage.

💡Brain drain

Brain drain is the emigration of highly trained or intelligent people from a particular country. The video discusses the potential for brain drain in Russia as a result of the war and sanctions, with skilled individuals and academics potentially leaving the country due to limited opportunities and increased isolation.

💡Anti-Western sentiment

Anti-Western sentiment refers to negative attitudes or feelings towards Western countries or their influence. The script mentions that the ongoing conflict and sanctions have led to an increase in anti-Western sentiment in Russia, which could have long-term implications for international relations and cooperation.

💡Survival mode

Survival mode, in the context of the video, describes Russia's approach to managing its economy under the strain of war and sanctions. It implies a focus on immediate needs and short-term solutions, often at the expense of long-term stability or growth. The video suggests that Russia is prioritizing its immediate survival over long-term economic health.

💡Unemployment

Unemployment refers to the state of being without a job while actively seeking work. The script notes that unemployment in Russia is at a historically low level, which might seem positive but actually indicates a labor shortage. This shortage is a result of the war economy, where the military and military-related industries are competing for a limited workforce, potentially leading to long-term economic challenges.

Highlights

Vladimir Putin's ability to continue the war in Ukraine is examined in the context of its economic impact on Russia.

Alexander Peno, from the Carnegie Russia Eurasia Center, provides insights based on his experience as an advisor to the Russian central bank.

Pre-war economic stability in Russia was disrupted by the invasion of Ukraine, leading to a swift response from the West in the form of sanctions.

The transformation of Russia into a war economy post-invasion and the shock it caused among government officials and the central bank.

Russian authorities' response to sanctions included blocking reserves and implementing anti-crisis measures to mitigate economic impacts.

The debate on Russia's economic performance shows a divide between those claiming collapse and those highlighting growth rates.

The reality of Russia's economy lies between the extremes, with growth fueled by export revenues and high government spending.

Inflation in Russia is a significant concern, primarily driven by state spending, creating a policy dilemma for the government.

Russia's dependency on China is increasing due to the shift in energy exports and the influence of Chinese companies in the Russian market.

The impact of sanctions on technology is evident, with Russia struggling to access necessary hardware and software.

Russian businesses are adapting to sanctions through various schemes and third-country proxies, which are vulnerable to further sanctions.

The lack of access to technology is hindering Russia's productivity growth, despite increasing wages and inflation.

Anti-Western sentiment in Russia is growing due to geopolitical struggles and personal sanctions, affecting future cooperation.

The potential for deeper academic cooperation with China and India is complicated by security concerns and language barriers.

Low unemployment and increased wages in the defense sector may provide a temporary economic incentive for prolonging the war.

The potential 'hangover' from the war includes decreased living standards and increased accidents due to underfunding and sanctions.

Russian people's perception of wealth distribution has changed, with some feeling richer due to the war, despite potential long-term economic consequences.

Putin's strategy for managing a post-war economy may involve gradual worsening of living standards and blaming the West for Russia's economic woes.

Transcripts

how long can Vladimir Putin afford to

continue his war in Ukraine without

inflicting economic pain on his own

people to talk about this I'm delighted

to be joined today by Alexander Peno

from the Carnegie Russia Eurasia Center

Alexander thank you so much for being

with us today thank you for having me

it's pleasure and honor I want to take

you back um to the weeks and months

before Russia's invasion of Ukraine you

were living in Moscow working for the

central bank as an advisor correct

descri to me how you would have conveyed

the economic situation back then oh you

know it's uh quite it's it's a good

question and it's interesting uh and

always useful to keep in mind that

before the war Russia economy has was

was in a quite good performance uh

because of it was on its recovery Pace

after covid uh and um uh well uh the

most risks for Russian economy was p

over effects uh from advanced economies

and probably some outbreaks of new of

new pandemic or whatever and then um so

everything was stable and looked stable

and one more very interesting thing

because uh well when the war started

everyone outside of Russia uh repeatedly

and you may probably remember us and um

UK authorities repeatedly told that that

it's going to be a war and here in

Russia

we thought that no it's not going to be

a war it would be super crazy to to have

a war so it's like you know it's like a

big game or whatever so it's a big Bluff

it's not going to be a war and I

remember that a week uh uh before the

fullscale invasion of Ukraine I sat with

my former colleague uh in one of the

Moscow restaurants and he tried so he

was a for um he is an expert in Russia

from uh International organizations and

he tries to convince me that it's going

to be the war and I as an Insider try to

convince him that now it's not going to

be because it's crazy for the economy

it's crazy for people well-being that uh

it will undermine the whole um growth

and development and all efforts of

government to to to to bring economy

back to recovery Pace after CID so and

yeah and all Outsiders were right most

insiders were wrong and now we are where

we are talk to me a little bit about

that early transformation into a war

economy and what that meant for your

colleagues that were working at the

central bank still you left your job at

that point we should say your conscience

wouldn't allow you to to stay in Russia

and you've been in Germany watching

events from here uh pretty much since

then but what did those early weeks and

months look like after the invasion so

uh shortly after the invasion everyone

was shocked I mean there wasn't some

sort of meeting before The Invasion

where Putin will tell his his advisers

and his uh ministers and the chief of

central bank that he's going to invade

no everyone was shocked everyone uh well

all people I spoke with uh was

absolutely terrified and find feel

themselves

devastated but uh then sanctions came

and uh uh speaking on behalf of economic

block of Russian government and Central

Bank so this started to work as

anti-isis managers the role they played

uh a couple of times before so uh it's

very interesting uh also I figured it

out that recently Russia was uh Russia

faced four major crisis during last 15

years it's extremely often compared to

uh any kind of advanced and uh

developing economies so and then two of

these crisis were absolutely handmade it

was first in 2014 first sanction after

annexation of Crimea and then sanctions

which came after uh the full scale

invasion of Ukraine so uh so this people

started to act as anti-crisis managers

and I can remind you that first uh there

was Russian reserves blocked and uh

Russian uh government and Central Bank

retaliate then they banned uh foreign uh

then they banned non-residents to

withdraw liquid assets from Russia uh

then they Tred to develop some sort of

uh defense measures for Russian economy

and they actually put the economy to

into artificial coma so they dealed less

with war outcomes but they deal a lot

with sanctions with pure economic impact

so uh I think that they don't have much

time for

reasoning what they are do why they're

not they they they they had a clue what

they're doing but they didn't have much

time reasoning why they're doing this

yeah because when it comes to assessing

how the Russian economy is doing there

seem to be two radically opposed camps

as you write as well there seem to be

one side that are saying the country is

on the brink of collapse and then the

other that are saying we've never been

stronger look at the growth rates and

actually these Western sanctions are

bowing the economy where do you stand

amid these radically opposed viewpoints

uh well the reality is uh a little bit

complicated and in terms of sanctions I

need to say that there is a some sort of

disend

disentanglement in uh perception of

sanctions within Russian Elites and

Russian bureaucrats so they're dealing

with only sanctions with its economical

outcomes without as I said uh keeping in

mind why the sanctions were actually

imposed so if you are isolated from the

war and it's Po and it's actually

possible if you're working in Moscow and

dealing with only your um part of and

then doing doing your part of your of

the job which for instance related with

financial markets So you you're dealing

with transactions for instance uh what's

going on in Ukraine it's going in

Ukraine you're you you you can even not

be familiar with uh with the news if you

are not checking them uh constantly so

you're are dealing with some struggling

because of transactions and if you every

day you are not reminding yourself why

you're why you're dealing with

transactional problems uh you very very

easy and very fast you will started to

forget uh what was the what was the

reason behind all that so actually uh

and I think this is a big problem with

sanctions the communicational which is

underestimated by uh both in Russia and

here in the west and speaking about the

debate here of course there are two

different polar opinions uh the reality

is somewhere in the middle since

Russia's economy is a big animal is a

big and rigid animal it's quite

complicated

to to be to kill with one shot so uh

with a very short term economy is

performing well it's partly because of

it's it's on it it was on its recovery

growth phase uh second this growth of

course is based uh on uh export revenues

and on high spending the fiscal impulse

uh from Russian authorities in 2022 and

2023 exceeded 10% of GDP uh historical

High uh in Russian's history and uh and

so all this uh and and all uh this

fulfilling uh this economic growth 3.6%

in

2023 uh but uh we need to always keep in

mind that uh since Russian government

will stop spending or decrease spending

growth figures would be different and uh

there is a we already see the big

problem between spending and inflation

inflation is a problem for Russian

authorities it's problem because it will

uh it it will Mount problems uh in the

midterm and then long term but now well

it seems manageable but well it's it's

always a trade-off for policy makers and

and and the actually the major reason of

the inflation the primary reason of the

inflation is State spending so there is

a problem of right and the leftand in

Russian economy with one hand Russian

Central Bank trying to mitigate

inflation to t uh price growing and with

another hand government uh continuous

spending and mostly on War I mean uh

Putin committed War EXP is in 2024

approximately 8% of GDP it's another

history record uh since in in in the the

history of modern Russia since the the

state was established after the

collapsing of Soviet Union and it's

enormous I mean never before uh Russia

spent so much and here are

extremely uh High wages of those people

who are in trenches uh State Demand on

uh weapons and ammunition and inflation

of Enterprises which is much higher than

the average over economy and if Russia

continue to so Putin will need to choose

sooner or later uh between three uh

major go between his three priorities

financing the War uh maintaining

people's well-being so uh paying

pensions at the same amount keeping

wages and keeping people happy with the

payments and uh lower inflation so all

three goals in one time it's impossible

that's something you you refer to as

Putin's Tri Lama isn't it trying to

balance those three things at once I

want to talk a little bit more about oil

because of course Putin did manage to

find new buyers in China India and

turkey for example but that has also led

to a kind of a shift in power dynamics

and I'm particularly interested in how

that relates to Russia's relationship to

China you know Russia is very much the

junior partner there how will that play

out in the future do you think

economically so economically the

dependency of uh dependency of Russia on

China is growing but China I would say

benefits this uh kind of relationship a

lot and enjoying uh and enjoying it it

it's quite cheap for China I mean uh for

uh Russia was a tiny market for Chinese

producers but after uh the fullscale

invasion of Ukraine it's it's uh

transformed into medium Market we see

that uh for Chinese uh po policy makers

it's quite easy to massage Putin's ego

saying that he's a great uh man and

leader of a great country but uh and

which brings to China cheap energy

resources first and for theost then uh

Chinese companies of I would say second

and third row since Chinese companies of

the thir of the first row and Chinese

banks are quite um I'm trying not to get

along with Russia so much so showing

that they are resp ing red lines uh

drawn by the West so uh but but but but

but second uh but second row company

then third row and companies and Banks

they're all enjoying this growing

dependency so uh and and this will grow

I mean uh so Russia will be more

dependent on China not only in terms of

uh having a a buyer

on Russian energy resources but also uh

in terms of technological import uh car

making so there were only two car U car

makers on Russian Market before it was

the whole world compete there and now

there is only Russian after us and 14

Chinese Brands I mean it's it's huge and

it's only and this transition happens

only during two years in in in there is

also a remarkable example uh from um

from the region of heavy vehicles uh the

uh the share of Chinese heavy vehicles

and trucks on Russian Market uh incre SK

rocketed it is increased on 600 uh%

during one year just mindblowing it's BL

it is it is and uh since when Russian

producers like Ural and Kamas uh so they

uh try they were focused on import

substitution and uh fulfilling the

demand from uh from the Army from the

state Chinese uh Chinese industry just

just set the market they occupied the

market and it would be quite complicated

to push them out if and when or when

Russia will think to do this right so

it's fair to say that Russia has found

new buyers for its energy but there are

other areas where Western sanctions have

been hurting the economy a little bit

more especially in the area of

Technology maybe you have a couple of

examples you can share about how that's

affecting the economy uh so in terms of

uh technology there is Russia you know

uh not developing its offshore gas and

oil uh because uh there is no access to

technology Russia lost uh from from what

I heard Russia lost uh its leadership it

was it wasn't a leadership but it has a

claim to be a leader in terms of AI in

terms of biomedical Technologies and um

Russia's industry struggling to get uh

hardware and um uh so both hardware and

software so they're switching from uh uh

from Western companies to Chinese

vendors and now they're feeling

difficulties with payments and also

payments and transactions all these

settlements issue is also a bottleneck

uh for Russia and this bottleneck was

created because of

sanctions uh there is a very interesting

uh story because there is a room for uh

interesting development between Russia

and China in terms of creating uh

parallel infrast parallel settlement

infrastructure which uh maybe in the

super long term not we're very we

decades from uh when it started to

undermine dollar dominance which Russian

uh propaganda is trying to say but it's

but Russia and China dealing a lot on

this issue uh and it's also an indicator

that uh this is a pro this is a

problematic area created by by by

sanctions so in terms of uh coming back

to technology there are problems with

computers with

semiconductors uh which uh Russia cannot

fulfill uh itself which Russia cannot

substitute domestically or from China so

uh Russian um businesses now forced to

deal with uh not systemic Solutions but

with different kind of schemes with

different kind of third countries kind

of proxies uh which can be uh you which

which can be easily traced and banned by

sanctions uh on so in general it uh

limits Russian productivity and we see

that wages are growing and inflation are

growing but Russian productivity is not

growing at all is there is there anger

among the business community no no it's

not an anger since

uh they I I I don't I I don't know I

would say correct correctly to say I I

know nothing about the anger but uh

business Community I know no one who is

quite who is happy with the with the

current situation so uh and uh the

attitude of Russian business and Russian

bureaucrats I would describe with the

very you know infantile uh formula that

can we go back to February 2022 when

okay there is a geopolitical struggle

with the west or how our leader

understand that but there is no war

which distracting resources and which is

really devastating but uh because uh but

because of the isolation uh because of

the design of personal sanctions and

because of lots of people are in the

lists with the bad reasoning uh why they

are here because someone called them

that they are near Putin or whatever so

the anti-western sentiment is growing in

Russia and this is well on the long term

I think it's bad since once uh this war

end and uh well both countries need to

think well Russia will not disappear and

EU will not disappear so um uh so Union

and Russia will need to think how they

will live uh how they will be neighbors

uh in the future well and uh and this

anti-western sentiment of course will

poison uh this future for years and does

does that anti-western sentiment also

apply to the economic policy makers and

advisers that you know you used to work

with I find fascinating that people uh

that some people who were responsible

for attracting foreign investors in

Russian market now are actually quite

skillful uh policy makers who are

designing obstacles on the path of

Western companies to withdraw their

assets and to and to leave Russia so

some of these people feel themselves

really offended and uh they are acting

in a retaliation mood some of them you

know they they think that they they are

they they like fatalists so they're

dealing with the situation but I think

that that here is it is a big problem

since uh neither one side nor another

knows how to live how to deal with each

other in the future the very the very

simple example is in terms of uh

exchanges institutional cooperation

between Russia Russian institutions in a

very wide range in science and

universities and corporate world and the

West so all this stopped and this all

and and and this looks like a double

sarcophagi human capital so there is

external pressure Russia uh the West who

who doesn't want to or who are not

dealing with Russians anymore because

they're Russians and and from the inside

uh since every contact uh should be

traced or um people from FSB are in

interested in every contacts in every

actions and why so why you're reading

why you're reading for Western article

why you're doing this they are

questioning people it all creates uh the

very very bad environment so people are

you know stopping to even be interested

in what's going on here and um very easy

and and and Russian science and Russian

universities very easy you will become

you know a cut off the uh uh the the um

the frontier the science Frontier and

the the most recent developments uh

different science fields and uh as I

said in the long run it's dramatically

decrease and damages the quality of

human capital in Russia and it's of

course disturbing do you think on the

other side that you'll also see a deeper

academic cooperation with the likes of

China and India as a result of this I so

there are issues with the collaboration

in China which are also disturbing since

there are uh multiple cases uh when FSB

accusing Russian scientists uh in a

state treason because of their

collaboration with China so I think

Russian scientists are quite uh careful

in this kind of collab ation too but um

uh it's you know the the science the

language of international science is

English and in Russia everything which

is in in English now sounds bad and then

the level of knowledge uh of Chinese is

increasing but we only two we it's only

two years of Russian pivot to the

towards uh East so it's not enough to

have you know to have a bunch of Chinese

Watchers of experts who are who can

fulfill the growing Demand on China same

with India there wasn't uh

Russia Russia has a very few India

Watchers uh even in a very peaceful

times uh they couldn't appear

accidentally because uh Russian

president decided to to to go on a war

against Ukraine and and all country were

forced to do what what what it's doing

so on the one hand you have this kind of

a brain drain but if you look at the

labor market General things look quite

good unemployment is down wages in the

defense sector are up this will end as

soon as the war ends and I'm wondering

if in a kind of a twisted way Putin

actually has an economic incentive to

prolong this as long as possible this is

it's there is a very interesting

backdrop on what you're calling the good

side so unemployment when unemployment

is on this historically low level so

it's a

2.8% uh it basically means that there is

no workers within the economy so if

there would be any kind of external

demand open or internal demand so for

instance uh China will need uh Russian

cars uh and after us will say okay we

can fulfill this demand they simply

cannot find people who will assemble the

cars because there is no workers so in

Russian Market is it is it's good

probably good situation in terms of

worker since uh employers are forced to

pay them more so people keep their jobs

and not uh not leaving their jobs and go

to other employers but uh on the back

side uh but but there is also other side

so there are three major forces on

Russian markets who are competing for

the labor force it is an army itself who

literally need men to put them on the

trenches and this men on the front line

they're getting uh enormous salaries and

the problem here is once the war end uh

there is no reason for the state to keep

the salaries and uh this will so uh it

is it is a big an open question to me

how uh Russian authorities will manage

this problem which is actually I think

semi social so there are people who

think that they are war heroes who want

to be treated as war heroes and uh their

salaries are unbearable burden for other

taxpayers uh both on corporates and on

the individual s so uh it would be a

problem the second Force who is

competing for Russian uh for

the second force is uh military industry

complex which is extended uh when I'm

calling when I'm saying military

industry complex I mean not only uh

industry which produces uh stuff for the

Army I mean weapons Armory tanks uh guns

and soever and supplies but also civil

part of Industry which are now working

three shifts and they also uh they

recruiting women on a typically men uh

professions like drivers truck drivers

heavy machinery operators and so uh they

also using teenagers Labor uh in drones

assembly lines because there is no

workers in Russia and they are also

competing for a labor force and third is

the rest of economy the Civil part of

economy I mean there is shortages uh

there is no sector in Russia uh which

doesn't feel shortages of workers right

now so the situation isn't uh super

bright and there is no migrant infl low

uh especially after uh crocus

terroristic attack so migrants are not

feeling this they even before crocus

they never feel themselves safe in

Russia uh well Russia is quite

nationalistic country we need I need to

admit this uh but now uh the and so

migrants inflow is almost stopped and

the situ and and and this is a

limitation on development of of the

economy which also means that uh prices

will go up because because because

Enterprises cannot uh raise the

productivity and also productivity is

limited by sanctions by technological

sanctions so uh the situation is okay in

terms of uh current moment in this

particular moment Russian feel

themselves quite rich and wealthy but uh

but but but its perception will change

in three years or in um in the midterm I

would say 3 years it's in the midterm

when uh situation will change and

situation will change so when I'm

writing about uh some time frame uh I

usually uh back on uh um on on a time

frame provided by military experts who

are saying that uh in terms of uh so

from the pure military standpoint uh for

the war for The Stance of War uh it's

the next 12 18 months would be decisive

and because the economy and The Stance

of Russian economy is the function of

what's going on at the front line if

Putin uh will decide to accelerate and

to to escalate and uh and if Russia want

to have another offensive it would be

some extra expenditures from from the

budget and some extra pressure and

tightness on the system so the equation

would be different so uh for uh for if

we are talking about from 12 to 18

months time frame uh with the current

conditions so the situation would be

relatively the same as it's today Putin

has enough money to uh to continue all

to to fulfill all three his goals after

that uh he will face uh budget burden

budget problems because of inflation you

know you mentioned earlier that Putin is

spending 8% of GDP on defense I think

about a third of this year's budget is

is going in that direction that is of

course at the expense of other areas

like social spending Health Care

education are Russian people feeling the

effects of that sort of prioritization

already so social spending is not cut

and uh it's actually accelerated so um

there was a very interesting Trend we're

witnessing right now so very interesting

um the changes in people's attitude of

wealth distribution since '90s and the

first time ever we see this so because

of the because people from a low uh

income Stratus are pure to are pure

beneficiaries of this war they feel

themselves more rich and happy and and

they think that the situation with

distribution of wealth within the

economy is more fair than it was before

so we're in a very paradoxical situation

that uh uh people are not feeling uh

people live quite badly before now their

living conditions

improved uh they are not uh thinking uh

they they don't have any time or any

kind of longtime Horizon they are not

planning for a long time uh so uh

they're living to they're living with

today and for today they're fine so

people are noticing that their life is

changing but for but for some people

life changed in a good way so they are

pretty happy with that you've mentioned

before that the longer this war

continues the worse The Hangover will be

and I'm not going to ask you to try to

predict when the war will end but I am

interested in your take on how Vladimir

Putin will deal with a bad hangover I

think

uh that people's uh living standards

will decrease but they will decrease uh

moderately so we will see uh so people

will have um less money because of

because of inflation so probably the

figures they will see from their SMS

from Banks would be relatively the same

but uh the purchasing the consumer

capacity of This Ss will be different

then uh I think we will see we will

witness a growing level of accidents uh

with Machinery with the um with with

with floods with fires with the with the

utilities with all this stuff because of

uh um because of the sanctions so it's

complicated to find particles for uh for

for the industry and uh because of

underfinancing the whole industry people

will see that uh so there would be less

roads built and less less industry less

infrastructure would be built because

the cost of this construction is rais in

because of the inflation so I think he

will choose uh gradual uh woring of uh

living standards and he will of course

uh say that it's all because of the West

it's all because of the cruel West all

because of the

sanctions and and this is very important

what we need to um realize about Russia

Russia is on its Survival Mod so when

we're looking on its on this with our

matrics of normal business cycle well

it's okay and then then here we can say

that there is no bright future in the

midterm but

if they are super happy and they're

encouraging themselves when when they

are when they can bypass sanctions when

they can find something new very

temporary and they're encouraging with

all this teeny tiny success and all this

means survival Modia so control of the

Ming might be the most powerful force

there Alexander Peno thank you so much

for talking to us today thank you