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Sanctions and the Russian Labor Market: Side Effects of War
The Russian labor market is “overheated”, most economists are convinced, and the level of employment is breaking historical records. This may become almost the main constraint to Russia’s accelerated economic growth in the foreseeable future. Analysts at the ACRA agency, having updated their medium-term macro forecast to 2026, note that low economic growth in the forecast period will be accompanied by higher interest rates, rising labor costs in real terms and budget deficits.
The war in Ukraine and Western economic sanctions have changed the Russian labor market so dramatically that we have not seen such changes in the last 30 years. The public sector and the military industry have been the main drivers of economic growth in 2023, which allowed Russian officials to claim that the economy is “recovering” and “adapting”.
Ongoing structural shifts have already resulted in high utilization of the economy’s existing capacity and workforce. Their levels have reached historically very high figures as a result of a combination of post-pandemic economic recovery in 2021 and increased public sector demand in 2022–2023.
The increase in military production required the injection of huge budgetary funds into the public sector and industry. It seems, however, that manufacturing industries have already…