'No sane investor' could be fooled by Putin's charade of optimism for Russia's economy, researcher says

• Putin's show of Russia's economic strength won't fool any "sane investor," Carnegie scholar Alexandra Prokopenko said.
• She pointed to Russia's growing budget deficit and labor shortage as its war on Ukraine drags on.

Russia's economy is weakening amid its invasion of Ukraine — no matter how much Vladimir Putin tries to convince the public otherwise, according to Carnegie researcher Alexandra Prokopenko.

Prokopenko, a scholar at the Carnegie Russia Eurasia Center and a former advisor to the Central Bank of Russia, pointed to Putin's show of defiance at the annual St. Petersburg International Economic Forum, where the Russian president extolled the strength of Russia's economy.

GDP could grow as much as 2% this year, Putin estimated, adding that the nation's military spending had only resulted in a "small" budget deficit so far. He also touted the strength of Russia's labor market, which saw its unemployment rate drop to 3.3% in April — the lowest the nation has ever recorded.

But in an op-ed on Monday for the Carnegie Endowment for International Peace, Prokopenko argued that points to signs of overheating.

"Demand is growing, but the domestic supply of goods and services is not keeping up with it, so prices are rising, instead of production increasing," she said, adding that the central bank is preparing to raise interest rates to rein in inflation.

The Kremlin's official statistics also give a misleading view of Russia's economy, she said. Though the Russian government balanced out its budget and saw no deficit at all during the month of May, it's already racked up a 3.4 trillion-ruble budget deficit this year, which equates to around $40 billion.

And Russia's low unemployment rate is likely due to the mass exodus of workers who are fleeing the country as war in Ukraine drags on, with worker availability falling to a record low in April.

"No sane investor could fail to see past the charade of this talk of a favorable economic climate to the devastating fighting in Ukraine, calls for nuclear strikes, and high-profile infighting between Russian mercenaries and the Defense Ministry," Prokopenko said.

"After a quarter of a century, SPIEF has been transformed from a prestigious investment forum to a platform for an aging autocrat who has somehow managed to convince himself that everything is going according to plan."

Other experts have also been critical of Russia's portrayal of its economy, with two Yale researchers accusing the Kremlin of cherry-picking its economic statistics.

Figures that could show a more worrying view, such as imports and exports, have been unpublished by the government, they said, making the case that Russia's economy was actually "imploding" as it ramps up military spending and sees its oil and gas revenues crash in the face of Western sanctions.