What Are The Consequences Of The Partial Mobilization Of The Army On The Russian Economy?

The sudden decision of Russian President Vladimir Putin, to call up about 300,000 members of the reserve forces, caused a state of uncertainty in the markets, and soon the shares of companies on the local stock exchange fell sharply by 10% after the first hour of trading, before almost half the losses were recovered. The decrease amounted to about 4%.

During the current year alone, the Russian markets have faced two uncertainties due to political developments. The first was on February 24, after the announcement of the launch of the special military operation in Ukraine, when people, fearing the loss of goods and high prices due to the weakness of the ruble, began stockpiling basic commodities.

The second case was at the end of September, after announcing the start of partial mobilization in the country when the demand for airline tickets increased sharply.

The announced partial mobilization has sparked a sharp increase in demand for air travel to countries that Russian citizens can enter without visas. According to the newspaper "Kommersant", ticket prices for travel destinations such as Istanbul, Astana, Yerevan, and Dubai have increased from 10 to 15 times.

Out of the mobilization framework

According to the Russian Ministry of Defense, the partial mobilization will have an impact on the country's economy, which will be taken into account by a number of companies, especially those related to the defense industries.

The ministry stated that the partial mobilization will not affect certain categories of the population, such as workers in the areas of financial, digital, and information stability, in particular employees of information technology companies, media, telecom operators, as well as employees of financial institutions.

However, the partial mobilization decision caused a situation that, according to press reports, reached the level of panic, while economists believe that it may cause prices to rise and affect the economic behavior of citizens.

The expert in macroeconomic analysis, Oleg Blinken, says that higher ticket prices will reduce effective demand for air travel. In order to stop the outflow of emigration, it is necessary for the authorities to further explain to the people how the partial mobilization mechanism works, whether it can be expanded in the near future, and whether the borders will remain open.

Mobilization and inflation

In an interview with Al-Jazeera Net, in response to a question about the possibility of a recurrence of the spring panic (the launch of the military operation in Ukraine) and the purchase of basic commodities, the economist ruled this out from happening and said that it was likely that the story would be the opposite. In his opinion, people will begin to realize that there is a real threat to the standard of living of their families, which will prompt them to spend money more carefully, especially in light of the fear of losing their breadwinner. He added, "Now we are waiting for weak demand, and if there is no currency devaluation, the price reduction may continue. ".

However, the expert explains that the impact of partial mobilization on the economy and inflation is still difficult to assess. According to him, despite the relatively small scale of the mobilization announced by the authorities (up to 300,000 people), its psychological impact may be stronger due to the ambiguous criteria by which citizens can fall under the conditions of mobilization, referring to Defense Minister Sergei Shoigu's speech that the mobilization resources amount to 25 million people.

He goes on to say that the uncertainty in the legal bases, and the more likely practice of applying them, could cause concern and affect the behavior of many more people, their families, employers, etc., well beyond the 300,000 limits.

For his part, economist Mikhail Delagin indicated that the mobilization had led to a state of confusion within some companies, with a state of uncertainty about the repercussions of the mobilization decision on the economic conditions.

He gave an example that if the head of a small company, who has 5-7 people under his command, was mobilized, his work would end there, and if a competent specialist was mobilized, his enterprise could stop working, which would lead to psychological discomfort due to the announced changes, and managers and businessmen would have to deal with it, and keep the rest of the employees calm. Otherwise, productivity of work will be in danger of a sharp decline in the near future, which is why companies will have to offer more favorable working conditions and improve the incentive system.

Positive results

On the other hand, the researcher at the Higher School of Economics, Georgy Ostapkovich, believes that an increase in military spending in the future may lead to the growth of the Russian economy.

In his opinion, an increase in military spending will lead to an increase in GDP, as well as the strengthening of light and medium industries.

According to him, the losses of the economy could amount to about 0.5% to 1% of the GDP, but the state will deal with that, as he put it.

But he considers that the main danger is that Western sanctions will not end in the near future, as Russia may be subjected to a complete ban on exports, which will change the situation seriously.

This economic researcher believes that - based on the current situation - nothing bad will happen to the Russian economy.