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exceed $100bn by the end of the year, potentially reaching as high as the previous all-time high of $120bn set before the war.
The effect of all this on the budget has also been positive. The budget deficit is currently at RUB 1.5 trillion, or about 90% of the full-year target. With oil revenues up more than 80% y/y each month and spending up by approximately 20%, the Ministry of Finance is on target to keep the deficit to 0.8% of GDP this year (RUB 1.6 trillion), which is half of last year’s 1.9% of GDP.
Labour shortages have become one of the biggest bottle necks to Russian economic growth. Part of the problem is Russia’s poor demographic situation. Russia’s labour force has been shrinking for over 15 years. Partial mobilisation of reserves and emigration from Russia have only made the situation worse. While unemployment has fallen to record lows, Russia has a dire need for both highly educated and low-skilled workers. Brain-drain and working-age persons leaving the country have hardly helped the situation.
Capacity utilisation has been at historically high levels since 2021, and sanctions are further restricting imports of investment goods. Russia’s efforts at import substitution are unlikely to make up for the deficit in production capital. A large portion of the growth in fixed capital investment this year and in coming years will go to military machinery & equipment, i.e. investments without potential to create a basis for sustained high growth in the future. By the same token, robust growth in the construction sector partly reflects financing of new military infrastructure, production facilities and fortification construction. Rapid growth last year will be impeded this year by rising interest rates for civilian construction and the reduced availability of subsidised-interest loans.
The war in Ukraine is increasingly going Russia’s war. In May, Russian forces have gained 171 square miles of Ukrainian territory, while Ukrainian forces have re-gained 1 square mile, according to the May 21, 2024, issue of the Russia-Ukraine War Report Card.
Russia is taking advantage of Ukraine’s acute shortage of weapons to push offensives all along the line of contact and making ground.
At the same time Ukraine is losing the drone war as Russia introduces new deadly glide bombs – heavy Soviet era gravity bombs with wings fitted that are very powerful and effectively destroying Ukraine’s defences.
In recent weeks, Russian forces have gained ground all across the frontline, with their surprise offensive in the northeastern region of Kharkiv resulting in their biggest territorial gains since late 2022.
The Armed Forces of Ukraine (AFU) are struggling to resist and have brought
8 RUSSIA Country Report June 2024 www.intellinews.com