Hypothesis: Russia is in deep economic trouble. Putin is bluffing about his continued ability to make war in Ukraine. He’s bluffing. Here’s my case for that assertion and the impending economic collapse of Russia.
Fuck Putin and the horse he rode in on.
Buckle up, because Russia’s economy is a house of cards propped up by war spending and oil fumes, and it’s wobbling hard.
Vladimir Putin’s propaganda machine touts GDP growth, low unemployment, and a wartime boom, but scratch the surface, and you’ll find a rotting civilian economy, a bleeding ruble, and a fiscal time bomb strapped to sky-high military budgets.
This isn’t resilience—it’s a desperate sprint toward stagnation, with a crash looming like a Moscow winter. Let’s tear into the numbers and expose the mess.
Gross Domestic Product: A Wartime Sugar High Masking Civilian Decay
Russia’s GDP — these are their numbers and I don’t believe anything coming out of Russia — supposedly grew 3.6% in 2023, rebounding from a 1.2% drop in 2022 after the Ukraine invasion triggered sanctions. The Ministry of Economic Development brags about a 3.9% forecast for 2024, but don’t pop the champagne.
By Q3 2024, growth slowed to 3.1%, and projections for 2025 (0.5–1.5%) and 2026 (1.0–2.0%) signal a stall. The dirty secret? This growth is a mirage driven by military spending, that hit 6–8% of GDP in 2024 and 2025, dwarfing social outlays. There are those with authority in the field who believe Russian military spending is more likely 20% of GDP.
War-related industries—tanks, missiles, drones—account for 60–65% of industrial output growth since 2022, while civilian sectors like extractive industries and agriculture limp along, choked by sanctions and falling export prices.
The civilian economy is getting gutted; car production and construction are already stalling, and non-defense manufacturing is flat. The car industry is collapsing in Russia because there is no demand and there is an inability to obtain chips to make cars. This is a huge problem and a persuasive indicator of trouble ahead.
Economists like Sergei Khestanov nail it: building missiles that “explode somewhere” boosts GDP but leaves civilians with crumbs. Without war spending, Russia’s economy would be in freefall, and the 2025–2027 outlook of 1.5–2.8% growth is a pipe dream given sanctions and structural rot.
Employment: A Labor Market on Life Support
Unemployment’s at a record-low 2.4–3% since mid-2024, but don’t cheer. This isn’t a thriving job market—it’s a desperate one. The war’s devoured workers through conscription, casualties, and emigration (668,000 fled in 2022 alone, a 71% spike).
Aging demographics and a shrinking labor pool mean Russia’s burning through its workforce.
Military recruitment bonuses—up to 3 million rubles ($29,000) in places like Belgorod—scream desperation as the pool of willing soldiers dries up. The military has further relied upon “renting” North Korean mercenaries, not a great sign.
Civilian industries face labor shortages, with productivity tanking 3.6% in 2022, the worst drop since 2009.
Real wages are up 8.7% in Q3 2024, but this fuels inflation, not prosperity, as workers chase skyrocketing prices.
More than 2,000,000 military age men fled Russia at the beginning of the Ukraine war.
Russia’s not creating jobs; it’s bribing soldiers and starving civilian sectors of talent.
Interest Rates: A Central Bank in Panic Mode
The Central Bank of Russia’s key interest rate is a jaw-dropping 21% as of November 2024, the highest in 25 years, up from 7.5% in July 2023.
P:utin and his central banker, Elvira Nabiuillina. This is his Federal Reserve Chairman Powell. I bet he has more influence over his central banker than the US President.
Why? To combat runaway inflation and a crumbling ruble.
These nosebleed rates are choking businesses, spiking borrowing costs, and crushing investment in anything not tied to tanks.
The Bank’s own forecast admits rates won’t drop below 20% in 2025, with a measly 9.7% by 2027—if they’re lucky.
Central Bank Governor Elvira Nabiullina’s stuck between a rock and a hard place: ease rates, and inflation spirals; keep them high, and the civilian economy suffocates. It’s a lose-lose, and her tightrope act is slipping.
Inflation: A Silent Thief Robbing Russians
Inflation’s a beast, hitting 9.7% annualized in October 2024, up from 7.4% in 2023 and 2.3% in April 2023. [I really don’t believe the Russians on inflation. I think it could be twice as high as they report based on PPP studies.]
The Bank expects 8–8.5% by year-end 2024, nowhere near its 4% target, which it won’t hit until mid-2026—if ever.
War-driven demand, fueled by military spending and wage hikes, is outstripping domestic production, forcing pricier imports and jacking up costs.
Sanctions make logistics a nightmare, and a weak ruble means imported goods cost an arm and a leg.
Low-income Russians, spending most of their cash on basics, are getting crushed, while the wealthy hoard savings.
Subsidized loans for soldiers and defense workers only widen the gap, acting like a regressive tax.
Inflation’s not just high—it’s a structural cancer eating away at living standards.
Trade Balance: A Ticking Time Bomb
Russia’s trade surplus is shrinking fast.
Oil and gas, once 70% of exports, took a 24% revenue hit in 2023 as sanctions bit and Urals oil traded at a $15–30 discount to Brent.
Exports are forecast at $453 billion in 2025, down 14% from 2021, while imports rise to $380 billion, 6% above 2021.
The “shadow fleet” of opaque tankers helps dodge sanctions, but falling oil prices and OPEC+ cuts and increases in production are squeezing revenues.
Coal and refining exports are projected to drop another 2% in 2025, and reliance on China and other “friendly” markets can’t offset lost Western demand.
The current account surplus is a fraction of 2022’s, and with half of Russia’s $600 billion reserves frozen, the National Wealth Fund’s liquid assets ($56 billion, 3.3% of GDP) are a weak shield. A single oil price shock could tip this house of cards into chaos.
Foreign Investment: A Ghost Town
Foreign investment? What foreign investment? Western sanctions since 2022 have scared off investors, and reputational risks sent companies like BP and Shell running.
Capital controls since 2023 and a hostile business environment under Putin’s iron fist make Russia a no-go zone.
The National Wealth Fund’s $133 billion is mostly illiquid, with 60% in Chinese yuan and 40% in gold, as Western currencies are off-limits.
Russia’s begging for Central Asian workers or Chinese cash, but anti-immigrant sentiment and geopolitical baggage keep doors shut. Without foreign capital, technological upgrades are a fantasy, leaving Russia stuck in a low-productivity rut.
Ruble Strength: A Currency in Freefall
The ruble’s a punching bag, down 45.4% against the dollar from 2014 to 2024 and 20% since February 2022. By late 2024, it hit 100 rubles per USD, with forecasts of 95.2 in 2025 and 106.7 by 2027.
Sanctions, frozen reserves, and falling export revenues are bleeding it dry.
Capital controls and 21% interest rates slowed the slide, but the ruble’s still wobbling. A weaker ruble spikes import costs, fueling inflation and making war materials pricier. Putin’s “invulnerable” economy is a joke when his currency’s this shaky.
Civilian GDP Degradation and Military Spending Surge
The civilian economy’s taking a beating.
War spending—$250 billion through June 2024, plus $200 billion in off-budget loans to defense firms—eats 20% of annual GDP and 29.4% of the 2024 budget (36.6 trillion rubles).
Defense outlays jumped to 13.5 trillion rubles in 2025, equivalent to $130 billion, or 7–8% of GDP while civilian programs, like consumer drone funding, are slashed tenfold to feed the war machine.
Non-defense sectors—hydrocarbons, agriculture, retail—are stagnating or shrinking, with extractive industries hit by sanctions and OPEC+ cuts and increases in production including the United States.
The military-industrial complex is the only game in town, creating a warped economy where tanks trump tractors. Economists warn this “unproductive” spending yields no long-term gains, leaving civilian infrastructure and innovation starved.
By 2026, stagflation looms as the output gap shrinks, with recession risks rising if oil prices tank or sanctions tighten.
Other Indicators: A Bleak Horizon
Real disposable incomes rose 9.6% in Q2 2024, but this is a wartime bubble, driven by military bonuses and subsidies, not sustainable growth.
The Gini coefficient ticked up to 0.404, signaling growing inequality as the poor get hammered by inflation.
Labor productivity’s abysmal, and sanctions block high-tech imports, crippling innovation.
The budget deficit, at 2% of GDP in 2023, is projected at 0.5% in 2025, but only because of tax hikes and oil price floors—band-aids on a gushing wound.
Russia’s demographic crisis, with a shrinking population and brain drain, caps long-term growth at 1.5%, far below regional peers.
The Bottom Line: A Ticking Economic Bomb
Russia’s economy is a wartime facade, propped up by oil and arms while the civilian sector rots.
High interest rates, runaway inflation, and a crumbling ruble are strangling households and businesses. The trade surplus is fading, foreign investment’s gone, and labor shortages are crippling. Military spending’s crowding out everything else, turning Russia into a one-trick pony galloping toward stagnation.
By 2026–2027, analysts see a crisis brewing—stagflation, recession, or worse—if oil prices dip or sanctions tighten. Putin’s boasts of resilience are hot air; this economy’s a ticking bomb, and the fuse is burning fast.
So what, Big Red Car?
The “so what,” my dear reader is that the USSR — remember those scumbags? — didn’t get beat on the battlefield; they failed economically.
I predict Russia is on the verge of an economic collapse. Mark my words. Russia, like its predecessor the USSR, will fail economically.