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Comment by kleiba | Hacker News Reader

One thing seems apparent: the strategy of the West to try and isolate Russia in response of their attacks on Ukraine has failed.

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Wars are very good at pumping GDP, but from reports, someone linked an FT article in this thread, the increase or sustain in GDP is all down to war time spending by the Russian government.

Economically they're in very rough shape, but GDP is doing well because of that war time spending.

> Economically they're in very rough shape

What does this even mean? I would have expected it to mean "can't wage war", "people are starving and storming the palace". Obviously not. So? Other than numbers, what does it really mean? If it's just "they have less luxuries", maybe it does not matter that much.

They are spending all of their cash on war production, which actually (combined with workforce shortages leading to higher wages) has resulted in unexpectedly high GDP growth.

However that's mostly fuelled by Russia spending all of their reserves (effectively they are literally burning money) to fund the war. There are actual reasons why they had to raise their interest rates to 21% despite inflation supposedly being below < 10%.

When that money runs out? Who knows.. Russia can hardly borrow in international markets. They'll have to either start printing money or the economy will crash. Well hopefully before they actually "win" the war. On the bright side their economy might crash anyway if the war is over (due to extremely high government spending propping it up, a bit like the situations immediately after WW1/2 in Britain or even the US).

> Economically they're in very rough shape

> What does this even mean?

It means that they have a very low debt-to-GDP ratio of 16.9%, a limited amount of natural resources (due to the small size of their country), plus they have been forced to switch to producing a lot domestically after the western sanctions in 2022.

How can you read this from a snapshot list of GDP at PPP?

Wartime economies can have a GDP that looks really good. Good video on this: https://youtu.be/9lRi-D2rM4Y?si=2gHBzlJPhR-0W3yh and a good contrast to Ukraine's war economy which relies more on market principles: https://youtu.be/E1gEDc7T7z8?si=iafDGcrPA_9dcYJi

In the short term at least. The Economist explored the topic recently:

Vladimir Putin spends big—and sends Russia’s economy soaring https://www.economist.com/finance-and-economics/2024/08/11/v...

https://archive.ph/uL3iW

The same Economist that was embarrassingly wrong in all their previous "predications" about that economy (you know, the one with their own space program, ton of natural resources, very low external and internal debt and neighbors/best buds with the worlds largest factory)?

The very same. Half of what you read in the Economist each week is insightful analysis you won’t find elsewhere; the other half is nonsense. The fun bit is figuring out which is which.

To be fair they seem to be somewhat accurate and objective. The Russian economy has proved to be unexpectedly resilient. Western countries continued buying Russian oil/etc. while restricting the exports of goods and services which lead to a massive current account surplus in 2022. They also have enough reserves to run comparable deficits to their current one for at least several years.

Of course having to raise interest rates to >20% while claiming that inflation is actually ~9% is not a good sign. Current account surplus is also going down and is pretty much where it was before the war.

Funnily enough the Russian government seems to be "fighting" the central bank by giving out mortgages and loans at a >50-80% discount. Which would indicate that (hopefully) their are forced to chose between inflation going our of control or most of the economy (at least the faction not directly dependant on government contracts) griding to a halt.

I mean obviously

wartime economies are like railing a tableful of coke. it'll be super productive for a few years, but the comedown is hard.

I think more importantly we may have failed to identify the bigger threat . China is #1 in many of these financial metrics and on track to take us down economically. They’re also ramping up to invade Taiwan which would bring us into a military conflict as well. Imagine if we allied with Russia and had China’s neighbors ready to pounce on them when that happens. War makes strange bedfellows, in WW2 we allied with Russia against the greater Nazi threat.

> Imagine if we allied with Russia and had China’s neighbors ready to pounce on them when that happens.

If you think that was ever in the cards i have a bridge to sell you

Imagine if nobody had any incentives to do stuff like that? As long as Chinese leaders remain reasonably rational and US/Taiwan maintain a high level if deterrence China won't invade.

Russia invaded Ukraine because (supposedly) Putin et al. believed that it will be a repeat of 2014. Quick invasion/coup and their in control of the country before US/NATO can react. As long as Winnie the Pooh doesn't think he can somehow that off in Taiwan why would he invade?

Russia will never be on US/EU's side in any conflict vs China. Maybe short-term they might make some concessions if we let them have most of Eastern Europe to...

> WW2 we allied with Russia against the greater Nazi threat

Only because the Nazi's backstabbed the USSR. Until that very moment they were affectively allied to Germany and they even bankrolled their invasions of France and Norway (Germany would have run out of oil a few months after Poland without the Soviets). France and Britain has almost serious plans to attack the USSR in Finland and Azerbaijan before the Battle of France.

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