Collapse is inevitable by autumn---sanctions and overspending.

Ultimately, however, it is not the automobile industry that is driving Russia’s economic growth.

Military spending is doing that.

Since Russia launched what the Kremlin is still calling its “special military operation” in Ukraine, armaments factories have been working round the clock and more and more Russians have been employed in the defence sector.

That’s driven up wages in the military-industrial complex.

But spend big on the military and there’s less to spend on everything else.

“Longer term, you are destroying the economy,” believes Chris Weafer, founding partner of Eurasian consultancy firm Macro-Advisory. “There is no money going into future development.”

He says back in 2020 there was much discussion about the National Project programme, under which $400bn was to be spent on improving Russia’s infrastructure, transportation and communications. Instead, “almost all that money has been side-tracked to fund the military industrial-complex and support stability in the economy”.

After more than two years of fighting, Russia’s economy has adapted to the pressures of war and sanctions. But the US is now threatening secondary sanctions on foreign banks aiding transactions with Moscow, and that is creating a whole new set of problems for Russia.

“Products have slowed down coming into Russia,” says Chris Weafer. “Spare parts are more difficult to access. Every day there are stories of banks in China, Turkey and the Emirates refusing to deal with Russian transactions, whether it’s money from Russia to buy goods or money going back to Russia in payment for oil or other imports. Unless this is resolved, Russia will have a financial crisis by the autumn.”

That’s why it would be wrong to conclude that Russia has beaten sanctions. Up till now it’s found ways of dealing with them, getting around them, reducing the threat from them.

But the pressure on the Russian economy from sanctions hasn’t gone away.

Since Russia launched what the Kremlin is still calling its “special military operation” in Ukraine, armaments factories have been working round the clock and more and more Russians have been employed in the defence sector.

That’s driven up wages in the military-industrial complex.

But spend big on the military and there’s less to spend on everything else.

“Longer term, you are destroying the economy,” believes Chris Weafer, founding partner of Eurasian consultancy firm Macro-Advisory. “There is no money going into future development.”

He says back in 2020 there was much discussion about the National Project programme, under which $400bn was to be spent on improving Russia’s infrastructure, transportation and communications. Instead, “almost all that money has been side-tracked to fund the military industrial-complex and support stability in the economy”.