Economic Impact of Putin's Military Mobilization in Russia

Russia has announced a partial mobilization, drafting numerous civilians into military service to fight in Ukraine. This decision is expected to have far-reaching consequences for the Russian economy and society.

The government regulations allow some key workers exemptions, but the mechanism for obtaining these is not yet fully functional since Putin announced mobilization on September 21. This uncertainty has led to a wave of emigration, with tens of thousands of Russians trying to leave the country. Long lines at border crossings and high prices for flight tickets are becoming common sights.

The main problem is not the loss of labor force, but the brain drain, as the people leaving Russia are usually wealthier and more educated. Economist Sofya Donets predicts that this decline in demand will shrink Russia's GDP by about 0.5% this year. Bloomberg Economics expects mobilization to exacerbate the decline in Russian GDP and stoke inflation this year, with these effects likely to persist over the next five years.

Many Russians are fleeing the country to avoid military service. High-tech companies in Russia have found that many of their employees were swept up in the current conscription wave. Some companies have chartered private jets to evacuate affected employees.

The Russian government promises to increase benefits for the families of conscripted soldiers to help them bridge the period of income loss. However, the decision to mobilize 300,000 men is hitting weak points in the struggling Russian economy, potentially causing a decline in consumer sentiment and demand. The mobilization is removing about one in a hundred active workers from their jobs, which could strain the already fragile finances of Russian families.

Tatiana Orlova of Oxford Economics expects higher military spending to boost the economy in this and next year. However, the long-term impact could be more damaging. The government is planning to increase pressure on its finances, with a significant increase in income tax collection in Russia's budget for the next two years. Long-term, mobilization and the rising number of war casualties and wounded will reduce the already small number of Russians of working age.

Official figures show a total emigration of 216,000 people from Russia in the first half of the year, but unofficial figures suggest closer to half a million. Companies are trying to protect their employees from mobilization by advising them to work from home on days when mobilization notices are due to be distributed in the office.

The initial impact on data could be mixed, with some of the mobilized being counted as employed and their wages appearing higher. However, the long-term effects on the Russian economy and society are likely to be more profound and far-reaching. The ongoing war and mobilization continue to pose significant challenges for Russia, with the full extent of the impact yet to be fully understood.