Russia's economy has entered what The Economist calls the "death zone" - a perilous state of terminal decline that mirrors the collapse of the Soviet Union in the late 1980s. What was once touted as a resilient, resource-rich powerhouse is now crumbling under the weight of Western sanctions, mismanagement, and the staggering costs of Putin's disastrous war in Ukraine.
Spiraling Toward Unsustainability
The parallels to the USSR's final years are striking. Just as Soviet planners funneled an unsustainable portion of the budget into the military-industrial complex, Russia is now spending nearly 40% of its budget on the war effort. This "war economy" is crowding out investment in critical civilian infrastructure, healthcare, and other vital services. As a result, Russia's long-term growth prospects are being systematically cannibalized.
What this really means is that Russia is trapped in a vicious cycle. The more resources it pours into the grinding conflict in Ukraine, the less it has to sustain its economy. And the more its economy deteriorates, the harder it becomes to fund the war. Credible reports indicate the Kremlin is severely underreporting inflation and GDP figures in a desperate attempt to maintain the illusion of stability.
The "Death Zone" Ahead
The bigger picture here is that Russia is careening toward a full-blown economic meltdown that could make the 1990s privatization chaos look tame by comparison. As the savings of Russian households rapidly dwindle and the country's fiscal buffers are depleted, the foundations of the economy are crumbling.
Without a dramatic shift in strategy - one that would require Putin to make unpalatable concessions on the war - Russia appears destined to enter a period of profound, long-lasting economic crisis. The "death zone" ahead may be even more severe than the collapse of the Soviet Union, with unforeseeable political and social consequences for the region and the world.