cross-posted from: https://mander.xyz/post/44807882
cross-posted from: https://mander.xyz/post/44807878
War-driven boom fades
The year 2025 marked the end of Russia’s wartime growth spurt of 2023-24. After two years of expansion of more than 4%, GDP growth for 2025 is expected to slow to around 1% or lower, with the same headwinds likely to persist into 2026.
The economy has largely exhausted the temporary drivers that underpinned growth in 2023 and 2024. In 2023, rapid expansion reflected a rebound from the shock of 2022, when the economy was forced to rapidly reorient toward wartime production.
In 2024, growth rested on a different pillar: a sharp rise in state spending. Federal expenditures increased by roughly a quarter that year, rising to 40.2 trillion rubles ($502.5 billion) from 32.35 trillion rubles ($404.4 billion) in 2023, injecting demand into the economy.
Those drivers were largely absent in 2025, and there is no obvious catalyst to revive growth in 2026.
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Tax burden rises as revenues erode
For the first time since the pandemic, Russia collected less budget revenue in 2025 than originally planned. When the 2025 budget was approved, revenues were set at 40.3 trillion rubles ($503.8 billion). Updated forecasts suggest actual receipts will come in closer to 36.6 trillion rubles ($457.5 billion).
This marks a break from the previous three years, including 2022, when revenues consistently exceeded initial projections.
The shortfall partly reflects weaker tax intake amid slowing growth, as well as falling oil prices and Western sanctions that have widened the discount Russia must offer buyers for its crude.
Oil and gas revenues in 2025 are now projected at 8.7 trillion rubles ($108.8 billion), well below the originally planned 10.9 trillion rubles ($136.3 billion). With growth slowing and oil prices under pressure, 2026 is likely to bring another year of weak budget revenues.
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Despite the economic slowdown, Russian authorities have little room to cut military spending as the war in Ukraine drags on.
President Vladimir Putin has shown no sign of backing down from his maximalist demands, repeatedly saying Russia is prepared to fight until it secures control over the four Ukrainian regions it claims to have annexed.
Officially, spending on national defense is set at 13.5 trillion rubles ($168.8 billion) in 2025 and 12.93 trillion rubles ($161.6 billion) in 2026. But actual outlays, including classified spending, are likely to be higher.
Russia does not disclose full military expenditures in its federal budget, publishing only planned figures.
Officials occasionally provide partial disclosures. In December, Defense Minister Andrei Belousov said defense spending amounted to 7.3% of GDP in 2025.
With GDP estimated at 217.3 trillion rubles ($2.72 trillion) in 2025, this implies total defense spending of around 15.86 trillion rubles ($198.3 billion), well above the figures published in the budget.
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GDP growth for 2025 is expected to slow to around 1% or lower. The GDP in Q3/2025 was 0.6% (according to Russia’s own official stats).
But the real problems can’t be seen by the GDP number. Practically all of this ‘growth’ comes form the industrial-military complex at the expense of civilian industries. For example, Russian soldiers’ families have received the equivalent of $2,000 to $20,000, sometimes more, depending on the region where they live. In the first three year of the war, the Kremlin spent spent 38 billion USD on these payments - the equivalent of 1.5% of Russia’s GDP.
The central bank recently made a small reduction of the key interest rate to 16%, which strongly indicates that inflation is much higher than the official 6%, hurting businesses but, more importantly, Russian people, and the VAT increase will make the situation likely worse in 2026.
Russian entrepreneurs’ business confidence is fading, and so is consumer confidence (again, according to panels from within Russia). The high interest rates make debt prohibitively high for most civilian businesses as companies in the military sector are main beneficiaries with access state-subsidized loans, which in turn fuels inflation.
Most economists haven’t been predicting a collapse of Russia’s economy, but rather a slow long-term decline. This decline, however, will most likely occur even if the war would end today, they say.
[Edit typo.]
Yeah even the Official inflation numbers are around +46% since the start of the full scale invasion (some 10%/year). Probably way higher.
Hope 2026 will be the final year for russia and its stupid wars.