Running out of road. Stagflation is hitting Russia’s war economy as sanctions take their toll on economic growth and price stability

December 30, 2025

TL;DR

Russia's economy is stagnant with high inflation, not collapsing.
Official growth rates in 2023-2024 were boosted by reviving Soviet military enterprises, and may have been exaggerated.
Official growth has slowed significantly in 2025.
Russia faces stagflation due to declining energy revenues, Western sanctions, and shortages of labor and technology.
The National Wealth Fund is projected to run out in the second half of 2025.
Russian export revenues have significantly declined due to Western sanctions.
The Kremlin plans to cut federal expenditures from 20% to 17% of GDP, potentially affecting military spending.
Reducing military spending during wartime is historically a negative omen.
Russia's corruption index is significantly lower than Ukraine's, with several high-profile corruption cases and unexplained deaths.
An extreme labor shortage, exacerbated by emigration, is hindering production and increasing wages.
Western export controls limit Russia's access to high-tech goods.

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