In Russia, economic sentiment has drastically declined, with a record 60% of the population expressing that economic conditions are worsening. This shift in perception marks a significant increase from 39% the previous year, indicating a growing discontent among citizens. The decline in confidence is attributed to the ongoing war in Ukraine, which has led to increased military spending and a series of broken promises from the government regarding tax increases and living standards. As a result, 56% of Russians now feel their living standards are deteriorating, a record high that reflects the mounting pressures on households.
The Russian government has attempted to stabilize the economy through military Keynesianism, a strategy that emphasizes government intervention to support economic stability during wartime. However, this approach is showing signs of strain as the costs of military operations rise and the economy becomes increasingly focused on war efforts. The government has raised the value-added tax from 20% to 22%, a move perceived as a betrayal of Putin's earlier promises not to increase taxes before 2030. This tax hike has negatively impacted employment and led to the closure of small businesses, further exacerbating the economic situation.
Despite the Kremlin's efforts to maintain social stability through stimulus spending and military investments, the economic landscape is shifting. Reports indicate that Russia's sovereign wealth fund assets have plummeted from 6.5% of GDP at the start of the war to just 1.8% now. Additionally, oil and gas revenues, which have traditionally supported the Russian economy, are dwindling as many countries seek alternative suppliers. The share of oil and gas receipts in the federal budget has fallen to its lowest level in two decades, highlighting the vulnerabilities in Russia's economic structure.
As the war continues, the Russian military faces challenges on the battlefield, with slow advancements and significant losses. The combination of military setbacks and economic difficulties is leading to a loss of faith in government institutions, including the military. Analysts warn that without significant changes in strategy or external pressures, Russia may be heading toward an economic, political, and military abyss, with everyday citizens bearing the brunt of these challenges.
