Russian economy slows amid war, but military orders keep it afloat

Ukrainian strikes on Wildberries warehouses, Russia's major online retailer, have caused significant damage, destroying almost 2 million square meters of facilities and vast amounts of goods. These attacks have impacted hundreds of thousands of employees and could threaten the existence of smaller e-commerce businesses.

While the attacks are spectacular, they have not crippled the Russian economy, which has been sustained by war-related spending. Official economic data shows a slowdown, with GDP growth projected at 1.1% for the year, a decrease from previous rates. The unemployment rate remains low, and real wage growth has slowed.

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If you're lucky and employed by a tank manufacturer, everything is fine. Otherwise, you probably have problems.

Analysts describe Russia's economy as a two-tiered system, heavily reliant on military orders. "If you're lucky and employed by a tank manufacturer, everything is fine. Otherwise, you probably have problems," noted Alex Kolyandr of Eurasia Group. He believes Russia lacks sufficient economic pressure to end the war and may even be incentivized to escalate.

Factors like elevated oil prices, partly due to the Middle East conflict, offer some support to Russia. However, the country faces increasing difficulties in capitalizing on this, partly due to Ukrainian attacks on its oil tankers and refineries. This has led to a decrease in oil and gas revenues compared to previous periods.

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If I were Putin, God forbid, I would probably consider it in my interest to escalate now and try to end the war on my terms, rather than wait until the money runs out sometime in the future.