Putin’s war on Ukraine is only costing a tiny sliver of Russia’s GDP

Just like that we've made it to Friday. Phil Rosen here, writing to you just blocks away from the Federal Reserve building in Manhattan.

This week we've gotten the biggest indication yet that central bankers may just pass on a rate hike at this month's meeting, and futures markets have all pulled back bets on a June move.

Philly Fed President Patrick Harker said Wednesday that policy is about as tight as it's going to get, but held back on saying whether it's peaked or not.

"I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause," he said in a speech in Washington.

The May jobs report is also due later this morning. Before that, we're doing a deep-dive into Russia's economy.

If this was forwarded to you, sign up here. Download Insider's app here.

1. Russia's invasion of Ukraine has incurred a steep human and geopolitical cost. Tens of thousands of people have died, and the Western world has isolated Russia through sanctions and trade boycotts.

Yet, a new analysis from The Economist shows that the fiscal burden on Moscow has been surprisingly low.

Direct war spending, according to the report, is estimated to be about 3% of Russia's GDP, or about $67 billion a year. That figure comes from a comparison of the country's pre-invasion forecasts for defense spending and actual spending.

By historical standards, that's very low.

During World War II, the Soviet Union, for example, spent about 61% of GDP on combat efforts. The US put about 50% of its GDP toward war near the same time.

Naturally, there's a political angle here — Moscow officials insist on calling this a "special military operation." That makes it hard to justify spending a lofty percentage of GDP on what is not a war, in their view.

But there are economic reasons too. Printing more cash for the war would push inflation up and bring pain to citizens in the form of higher cost of living.

Not only that, but saddling banks with war debt could have a similar impact, and inflationary moves could in turn harm Vladimir Putin's political aims.

Technology, too, plays a role. It's more advanced than ever, so militaries require fewer machines and people than ever.

All this isn't to say Russia's economy hasn't been hamstrung. The state's own economic figures showed a sharp 5% drop in industrial production for April compared to the month prior.

That coincides with a historic labor shortage that's been a drag on factories.

A recent central bank survey found that the country has been short of able workers since a mass exodus that kicked off since the invasion, as well as war losses.

All told, some estimates say about 1 million people have left Russia.

Are you surprised by the relatively low fiscal cost of Russia's war? Tweet me (@philrosenn) or email me ([email protected]) to let me know.

In other news:

2. US stock futures rise early Friday as investors await the May jobs report. The Senate also passed the key debt-ceiling deal, ending the threat of a US default. Check out the latest market moves.

3. Earnings on deck: Mercurity Fintech, Sectra, and more, all reporting.

4. Goldman Sachs explained how to cash in on the $7 trillion AI explosion. Strategists shared a list of 15 buy-rated stocks that have exposure to a red-hot sector that looks like it's still gaining momentum. See the list.

5. The housing market faces a "chicken and egg" dilemma. High mortgage rates are deterring buyers, while sellers don't want to enter the market and swap out the low rates they locked in previously. Realtor.com said the quandary could lead to falling home prices later this year.

6. Entrepreneurs and companies are getting more "AI curious" as Wall Street pushes steep valuations for leaders in the space. An American Express survey found that 41% of small businesses say they're prioritizing artificial intelligence to help them make decisions. Read more.

7. India snapped up a record amount of Russian oil in May. In the same month, flows coming out of Saudi Arabia plunged to a 28-month low. Thanks to hefty discounts on its crude, Moscow has supplanted competitors as India's top supplier.

8. US home prices just jumped for the second-consecutive month. That followed a 5% decline from June 2022 to January 2023. Here are the six cities where prices are rising the fastest.

9. This year will go down as the year of disappointment for homebuyers and sellers. That's according to top appraiser Jonathan Miller, who thinks it will take a long time for the market to normalize once again.

10. Shares of C3.ai plunged by 20% on Thursday. Investor expectations were high for the buzzy tech firm, but its earnings outlook failed to live up to the AI hype. Before this week, the stock had climbed more than 250%.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email [email protected].

Edited by Max Adams (@maxradams) in New York and Nathan Rennolds (@ncrennolds) in London.