IS THIS IT, finally? After four years of sanctions-busting growth, a growing chorus of think-tank economists is calling time on Russia’s war economy. A new report published by the Kiel Institute for the World Economy argues that Russia now faces “structural exhaustion”. Charles Hecker of the Royal United Services Institute reckons that “Russia is probably already in recession”. Nigel Gould-Davies of the International Institute for Strategic Studies, one more, talks of “the coming crisis in Russia’s political economy”. Even Russian official figures point to GDP shrinking by 0.2% in the first quarter, year on year.
Since invading Ukraine in early 2022 Vladimir Putin’s Russia has thumbed its nose at those who have repeatedly predicted economic doom, defying Western sanctions by reorienting trade towards countries like China and India, and spending its ample fiscal reserves on the armed forces, infrastructure and social benefits. Between 2022 and 2025 Russia’s GDP per person, adjusting for inflation, rose by 12%—not impressive by the standards of other emerging markets like China or India, and flattered by defence production that does not benefit households, but not bad when compared with the dire predictions. Despite fresh strains, the country’s war economy is not about to collapse.
Start with the weak official statistics. These are, in large part, a statistical mirage. A rise in value-added tax (VAT) in January, from 20% to 22%, had encouraged Russians to make lots of purchases in late 2025, boosting that quarter’s growth at the expense of the next. Early 2026 also had fewer working days than a year earlier, and—even by Russian standards—grim weather. A potentially cleaner gauge of economic activity, produced by Goldman Sachs, is consistent with sluggish growth but no slump (see chart 1). Data from VEB, another bank, points to an acceleration in GDP in March and April, in part thanks to a surge in oil prices. Russia is almost certainly not in recession.
Elsewhere, the picture is mixed. Consumer confidence has slipped, according to a measure tracked by the Levada Centre, an independent pollster. But that was from close to an all-time high (see chart 2). Jobs may be a little harder to come by than a year or two ago, yet unemployment remains close to a record low of around 2%. Russia is finding it harder to export fossil fuels, the lifeblood of its economy, as Ukraine ramps up attacks on its energy infrastructure, even as oil prices have crashed from the highs they hit during the Iran war. Even so, overall goods exports in April (the latest available official figures) were slightly higher than in the previous year.
In other ways the economy is actually improving. Inflation is half its recent peak of more than 10%. Real wages, already 25% higher than in 2019, continue to rise. Many companies are doing just fine. In the first five months of 2026 Aeroflot, the national carrier, carried its passengers on journeys totalling 40bn kilometres, nearly a tenth higher than the same period of the year before. Oligarchs are evidently doing even better. Sales of luxury cars smuggled from the West are soaring; so far this year they have bought 80% more Lamborghinis than in 2025.
It is true that this resilience owes a lot to Russia’s heavy fiscal stimulus. Last year the government spent the equivalent of 7-8% of GDP on the armed forces. This enormous outlay, those who foresee a crisis argue, sucks manpower from the rest of the economy, as well as draining the government’s finances.
Perhaps. Yet Russia’s military splurge represents an increase of 3-4% of GDP from the pre-war norm—not nothing but not enough to have enormous knock-on effects. The civilian economy is treading water, rather than contracting.
Russia’s fiscal problems, meanwhile, are not yet acute. To pay for Mr Putin’s war the government can increase taxes, as it recently did with VAT. It can fund any remaining shortfall—currently around 3% of GDP—by drawing on the government’s rainy-day funds. It can borrow from the captive domestic market. At a pinch, Mr Putin’s financiers can raid the rouble deposits held by corporations and households. This would be a last resort with real knock-on consequences. But who would stop them?
All things considered, Russia can expect GDP growth of around 1% this year: about as good as France or Canada. Tougher sanctions, such as those unveiled by Britain on June 16th, may cut this growth a bit. So will oil prices, if they continue to fall, and Ukrainian attacks on Russian oil infrastructure escalate. But it would take something much more radical to keep Mr Putin’s war economy from trundling along.
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