Projections of “growth” are misleading---those figures indicate rampant inflation, not stability.

After Russia invaded Ukraine in 2022, its economy seemed certain to suffer as a coalition of Ukraine’s allies, led by the United States, imposed an unprecedented program of sanctions. Many figures, including U.S. Treasury Secretary Janet Yellen and EU Sanctions Envoy David O’Sullivan, predicted that these would force Russian President Vladimir Putin to choose between the war and a struggling economy. But Russia’s economy has defied these predictions. Thanks to record state spending, the Russian economy will grow faster than the global economy in 2023. Whereas the latter is forecast by the IMF to grow by three percent, the former is predicted by the Russian government to grow by 3.5 percent. When the exact figures come in, Russia’s economic growth in 2023 will likely turn out to have exceeded three percent, and Putin will no doubt boast about this in speeches ahead of this spring’s presidential election.

Rather than signaling economic health, however, these figures are symptomatic of overheating. The Russian economy’s problems, in fact, are such that Putin is facing an impossible trilemma. His challenges are threefold: he must fund his ongoing war against Ukraine, maintain his populace’s living standards, and safeguard macroeconomic stability. Achieving the first and second goals will require higher spending, which will fuel inflation and thus prevent the achievement of the third goal. High oil and gas revenues, adept financial management by the Russian authorities, and lax enforcement of Western restrictions have all played their part in Russia’s economic growth, but they mask growing imbalances in the economy.

Ahead of the Russian election, Putin is unlikely to mention that over a third of Russia’s growth is due to the war, with defense-related industries flourishing at double-digit growth rates. Civilian industries, which are also involved in producing products for the front—such as footwear, clothing, and medicine—lag slightly behind. Russia’s bright 2023 economic landscape concealed dangerous tradeoffs made in pursuit of short-term gains. Even if Moscow’s financial leadership succeeds in cooling down the economy by the end of 2024, major problems caused by the war are inevitable. These include discontent over underfinanced public health, mounting shortages of tools and equipment due to the tightening sanctions regime, and major dislocations caused by mammoth investment in the defense industry. Future generations will pay a heavy price for the current state of affairs, although for now this is the last thing on the Kremlin’s mind.