"The economy isn't headed for an imminent crash, but GDP has stagnated, oil revenue has been halved amid Western sanctions, and the government's budget deficit is rapidly draining reserves. At the same time, two economic systems have emerged. One is comprised of the military and related industries that receive priority from the Kremlin. And then there's everything else that's been "left in the cold," Prokopenko explained."
"'The most dangerous feature of this new structure is the fuel it burns,' she added. 'Russia's economy now runs on what might be called 'military rent': budget transfers to defense enterprises that generate wages and economic activity.' But the transfers are aimed at assets designed for destruction, Prokopenko pointed out. In other words, the money that keeps Russia's factories humming pays for tanks, armored vehicles and other weapons that eventually get destroyed or damaged, making them useless for future economic growth."
Russia's economy has entered a 'death zone' where high strain forces consumption of future productive capacity. The economy exists in a negative equilibrium, maintaining current operations while steadily eroding long-term capacity. GDP growth has stagnated, oil revenues have been halved amid Western sanctions, and a growing budget deficit is rapidly draining reserves. A two-tier structure has formed: the military and defense industries receive priority support, while civilian sectors are neglected. State transfers now fuel economic activity by propping up defense enterprises, but those expenditures buy destroyable assets and reduce available human capital, undermining future growth prospects.
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