Russia's war economy begins to give up. Military expenses lead to collapse. “We are on the edge of the precipice”
After years in which the Kremlin praised the “resilience” of the Russian economy in the face of Western sanctions, reality seems to contradict it. The Minister of the Economy in Moscow admits that Russia is “at the outskirts”, while inflation is approaching 10%, industrial production slows down, and the lack of labor becomes critical. Everything, against the background of a hyper-militarized economy and a budgetary policy suffocated by the expansionist ambitions of the Putin regime.
Maksim Resetnikov, Russian Economy Minister/ Photo: X
A rare warning from the Russian government
On June 19, at the Saint Petersburg Economic Forum, Maksim Resetnikov, the Russian Minister of Economy, said a phrase that drew the attention of the international observers: “We are on the edge of the gap.” The statement, rare in a political landscape dominated by propaganda and denial, validates the warnings of Western economists who have been saying that the “Military Keynesianism” model promoted by Moscow is not sustainable.
After the invasion of Ukraine, the Russian budget was massively redirected to the defense industry: from 3.6% of GDP in 2021, to over 6.3% estimated for 2025 – exceeding even the proportions from the US military budget. In the short term, the budget injection saved the growth indicators, but he masked the collapse of human capital and the stagnation of productivity, writes Fortune.
War devours Russia's workforce
Over a million Russians left the country, and hundreds of thousands were sent to the front, many without returning. In just one year, between 2022 and 2023, the number of employees between the ages of 16 and 35 has decreased by 1.33 million – the largest demographic contraction of the last two decades. Analist Elina Ribakova, from the Peterson Institute, describes the phenomenon as a sinister “musical chairs game”: wages only grow in the war sectors, but without generating real development.
Accelerated inflation, huge interest, declining industry
Although wages in strategic areas have increased, inflation rapidly eroded their effect. In 2024, the inflation rate reached 9.52%, as far as 7.42% in the previous year. At the same time, industrial production almost stagnated, with an increase of only 0.2% in annual terms – the weakest rate of the last two years.
The central bank of Russia was forced to raise the key interest to 20% in June, a clear sign that the classic economic stabilization tools are already exhausted. And the forecasts for 2025 are bleak: an economic growth of maximum 2%.
Oil temporarily saves the budget but does not change the direction
Energy exports continue to represent an essential pillar of the Russian economy – almost 20% of GDP comes from oil and gas. The escalation of the conflict between Israel and Iran led to a temporary increase in the price of the barrel, giving the Kremlin a mouthful of fiscal oxygen. But analysts warn that this “respiro” is fragile and temporary.
Sanctions and economic isolation continue to bite deep
Despite some hopes generated by a more conciliatory rhetoric from US President Donald Trump, Russia remains isolated from Western capital markets. The sanctions persist, and the withdrawal of foreign companies continue to leave goals difficult to fill in investments, innovation and critical technologies.
Charles Kupchan, an expert of the Council for External Relations, warns that any relaunch of economic ties with the West will have a major political cost, including Washington.
An exhausted economic model and a drifting society
Behind the figures and indicators, the image that is outlined is a bleak one: a captive economy in the logic of war, in which the short -term prosperity is bought with the future of an entire society. Russia burns its human and financial reserves in a conflict whose real costs are only now visible-including for their own decision makers.
