Russia Letter from Moscow – mobilisation bears down on the economy

As Russia’s war in Ukraine enters a new phase, so does the economic crisis. Based on my conversations with locals and observations from a recent visit to Moscow, it appears the mobilisation of new troops announced in late September has dented consumer and business confidence and reduced demand for goods and services. This fits with our forecast for the GDP contraction to deepen to 2.8% q/q sa in Q4 from 2.4% in Q3.

What you will learn:

• For many middle-class families, mobilisation was a wake-up call that prompted them to change their long-term plans. This is affecting the economy via multiple channels, including depressed demand, mass emigration, and reduced household and business lending.
• The Russian public does not expect the war to end soon and thinks that at least one more mobilisation wave is coming. These expectations affect savings and investment behaviour. If another wave of mobilisation is announced, we will revise our 2023 GDP forecast down from the current -2.0% given its potential detrimental effect on the economy.
• Opinion polls likely overestimate public support for the Ukraine war. But our on-the-ground discussions reveal most people agree with the official narrative that Russia is fighting the West rather than Ukraine. Mass anti-war protests are unlikely as the price for participating in them is seen as too high. The prospect of a regime change is not widely discussed.