Daniel Thomas
Business Reporter
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Russia has significantly increased military production to support war in Ukraine
Since the illegal invasion of Ukraine in 2022, Russia has become the most licensed nation on the planet, but its economy has been extremely resilient.
In 2024, if any official Russian figures could be believed, its economy surpassed the economies of all G7 nations: Canada, France, Germany, Italy, Japan, the UK and the US.
The Russian economy grew 4.3% last year, but in the UK it was 1.1% and in the US it was 2.8%.
This growth in Russia was led by the Kremlin’s record military spending.
The country’s oil exports are also relatively stable in volume, as supply that was once directed to Europe was diverted to China and India.
And the “shadow fleet” of tankers, whose ownership and movement could become obscure, helped Moscow avoid sanctions elsewhere.
Meanwhile, the Russian ruble has become the best performing global currency this year, recovering with over 40% profits, according to Bank of America.
But as we move towards 2026, mood music has changed.
Domestic, inflation is constantly high, interest rates are rising sharply to 20%, and businesses are unable to find the workers they need. And worldwide, oil prices had retreated this year before the current conflict between Israel and Iran caused a surge in.
The Russian economy minister warned on Thursday that the country is “on the crisis” of the recession after a period of “overheating.”
And some Russian watchers suggest that the economy could be heading for collapse.
But how much is it really possible? And how does that affect the current state of war?
“We are pleased to announce that we are a great opportunity to see the BBC News,” said Yevgeny Nadorshin, a Moscow-based economist.
However, he predicts the recession will be “mild” and calls the meltdown proposal “a complete lie.”
“Undoubtedly, the Russian economy has experienced more recessions than this.”
Nadorshin points out that Russia’s unemployment rate is currently at a record low of 2.3%, likely peaking at just 3.5% next year. In contrast, the UK’s unemployment rate in April was 4.6%.
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Russia’s military spending, such as New Tanks, depends on overseas oil sales
Still, he and others see the reason for concern. This is because Russia appears to have entered a period of stagnation.
That inflation rate was 9.9% for the year until April, as Western sanctions not only pushed up import prices, but also due to a shortage of workers that caused wages.
According to Russian high schools, the country lacked around 2.6 million workers at the end of 2024. This is mainly the case of men who went to war or fled abroad to avoid it.
Central banks are trying to raise interest rates this year to record levels and try to raise prices, but it’s becoming more expensive to raise the capital needed for businesses to invest.
Meanwhile, official figures show that Russian oil and gas revenues fell 35% year-on-year in May, down 35% from the previous year.
It contributes to the growing budget shortage that has left the country due to low costs for infrastructure and public services.
“They have this big spending for the untouchable military,” says Andras Torth Chihura, a political analyst and Russian watcher. “That means money is beginning to be re-allocated from key investment projects on roads, rail and utility.
“The quality of the offering is really struggling.”
Russia may have dealt with Western sanctions better than expected, but they continue to drag themselves to the economy, he added.
Russian companies are struggling to import the necessary technologies, and are seriously damaging the automotive industry. The EU has also banned the import of Russian coal, diversifying away from gas to abolish imports by 2027.
“None of this seriously hinders Russia’s ability to wage war in the short term,” Toss Chihura said. “But that could affect the economy’s ability to grow or diversify over the next few years.”
So far, the Kremlin has dispelled its concerns. In early June, spokesman Dmitry Peskov told reporters that the “macroeconomic stability” and “fundamental strength” of the Russian economy were clear.
Meanwhile, he said in April that the economy is “very successful” thanks to government policies.
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The Ruble, the Russian currency, is surprisingly resilient
It’s hard to say what will happen next.
If Ukraine and Russia reach a peace agreement that is not impossible this year, it will ease some of the pressure on Moscow. US President Donald Trump has described his desire to normalize relationships and develop new economic partnerships.
But Europe often “maintains course” in the case of peace and may maintain its own sanctions, says Dr. Katyyajafimava of the Oxford Institute of Energy.
“Even if not, seeing a big return to Europe, which buys Russian oil and gas, as before 2022, is possible with a small profit from importing gas, but it is impossible to see a big return to Europe,” she added.
“Even so, this would represent a difficult economic image for Moscow. Russia has resumed mostly exporting oil from Europe, but it’s even more difficult to do so because of the gas.”
Whatever happens, the war appears to be having long-term costs for Russia – and the Kremlin is running out of ways to offset them.
