Key Points – Russia’s wartime economy, focused on Ukraine, which has so far defied predictions of collapse, is now showing clear signs of strain and is “on the verge” of a recession, according to its own economic development minister, Maxim Reshetnikov.
-Speaking at the St. Petersburg International Economic Forum this week, the minister warned that the economy is cooling rapidly.
-This downturn is driven by massive military spending—which accounts for a third of the federal budget—soaring interest rates held at 20% to fight stubborn 10% inflation, and a nationwide labor crisis.
-While some officials remain publicly optimistic, the rare admission highlights the growing fragility of the Russian economy under the pressures of a prolonged war.
Ukraine War: Is Russia’s Wartime Economy Collapsing?
Russia’s delicate wartime economy is struggling, and its minister of economic development warned this week that the country is “on the verge” of a recession.
The rare public warning came during the St. Petersburg International Economic Forum, the nation’s most prominent annual business and economic conference often referred to as the “Russian Davos.”
Citing current business sentiment and economic indicators, Reshetnikov said that the Russian economy is cooling rapidly and any hope of avoiding a downturn now hinges on new major policy decisions. Chief among them? Cutting interest rates.
According to Reuters, Reshetnikov’s comments were not intended to indicate an imminent recession, but rather to warn Moscow that decisions must be made now to avoid it.
“I didn’t predict a recession. I said we’re on the brink,” Reshetnikov said. “From here on out, everything will depend on our decisions.”
In a statement issued this week, the Russian Center for Macroeconomic Analysis and Short-Term Forecasting said that an “economy of stagnation” has emerged following years of military conflict and sanctions.
Echoing Putin’s Concerns
The comments appear to reflect concerns expressed by President Vladimir Putin in March, when he warned that the economy must not be frozen like a “cryotherapy chamber.”
Speaking ahead of the last rate decision by the nation’s central bank, Putin admitted that a period of cooling was “inevitable” but that there seems to be general agreement between the central bank and government.
“It’s essential that everything proceeds as planned in practice, avoiding excessive cooling,” Putin said.
Since October 2024, Russian interest rates have been held at 21% as part of an effort to fight off rising inflation. In June this year, the bank cut rates slightly to 20%, but that figure is still among the highest levels in the country’s modern history.
Businesses have complained that borrowing costs are prohibitively high and choking investment across sectors.
During the St. Petersburg forum, Reshetnikov urged Central Bank Governor Elvira Nabiullina to “show the economy some love” at a time when inflation remains stubborn, hovering at around 10%.
The figure is far above the bank’s ambitious 4% targets, and is driven by a combination of wartime spending, sanctions, and a nationwide labor crisis.
Since the invasion of Ukraine, the Kremlin has been forced to dramatically increase defense spending, allocating $130 billion USD to its military in 2025, constituting roughly one third of the federal budget.
While the downturn spells trouble for Russia, officials believe that the downturn is manageable for now, with Finance Minister Anton Siluanov arguing that “summer always follows a cold snap,” indicating that progress can be made as long as its central bank takes dramatic action – and soon.
About the Author:
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society. His latest book is The Truth Teller: RFK Jr. and the Case for a Post-Partisan Presidency.
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