Russia’s economy is showing clear signs of deceleration, a trend that could significantly undermine the country’s capacity to meet its mounting financial obligations in the areas of defense, national security, and essential social expenditure. This concern was voiced emphatically by Alexander Shokhin, the influential president of the Russian Union of Industrialists and Entrepreneurs, during his remarks on the state-run Rossiya 24 television channel earlier this week. He underscored that what officials optimistically characterized as a carefully managed economic ‘soft landing’ appears, in reality, to be neither sufficiently gentle nor convincingly controlled. Instead, the slow pace threatens to stretch state resources thin at a time when obligations are rising rather than diminishing.
At the beginning of the year, government policymakers had worked under the assumption that a minimum growth rate of approximately 2% annually would be indispensable. Such a level of performance, in their view, was needed to guarantee reliable funding for military expenditures, domestic security needs, social welfare commitments, and future investment projects critical to sustaining economic capacity over the long term. However, as the year progressed, it has become clear that the Russian economy is unlikely to reach this objective. Shokhin warned that by the end of 2025, economic expansion might reach only slightly above 1%, and even by 2026, growth is projected at a mere 1.3%. These numbers fall markedly short of what is required. In fact, his pessimism is echoed to some degree by projections from the Bank of Russia, which propose a forecast of merely 1% to 2% for 2025. This is a stark decline from the strong 4.3% growth rate that the country experienced in 2024. Analysts surveyed by the Interfax news agency also adjusted their perspectives downward, with expectations now set at 1.1% growth for the current year, when just months earlier the consensus was a somewhat more favorable 1.4%.
Echoing these warnings, Shokhin emphasized that such anemic growth is inadequate for the scale of national obligations. He cautioned that it is imperative the ongoing phase of economic cooling does not extend indefinitely, since the country already requires a rebound to sustain stability. The pressing challenge, in his view, is not merely to avoid recession but to cultivate a dependable baseline rate of expansion that can simultaneously address domestic consumption, investment demands, and the rapidly escalating weight of defense commitments.
The context for these developments is crucial. Since the launch of Russia’s full-scale invasion of Ukraine in February 2022, the nation has been subjected to sweeping Western sanctions. In response, Moscow has relied heavily on record levels of defense spending and the vital stream of revenue generated from oil and gas exports to maintain output and prevent an outright collapse in economic momentum. These extraordinary state-led expenditures have undeniably kept factories operating at high capacity, supported employment, and temporarily propped up industrial activity. Yet this short-term stabilization has come at a significant strategic cost. The economy has become so deeply militarized that by the closing months of 2023, the head of Russia’s central bank was already warning of the danger of overheating—an economic imbalance in which domestic demand would far exceed the capacity for sustainable supply. To counter this, the central bank acted decisively, substantially raising interest rates. This policy move was effective in suppressing inflationary pressures but carried the unintended consequence of further slowing overall growth.
Against this backdrop, Shokhin has argued forcefully that Russia cannot depend indefinitely on emergency measures and bloated defense budgets to sustain output. Instead, it must secure a steady growth rate of between 2% and 2.5%, which he described as the critical ‘optimal’ zone. Growth in this range, he explained, would allow the country to achieve multiple strategic objectives simultaneously—avoiding dangerous overheating while ensuring sufficient resources to meet economic, military, and social responsibilities. Without such a balance, the nation risks entering a phase in which stagnation and overextension could become chronic challenges.
Meanwhile, fiscal policy developments suggest that the government itself is preparing for a long and costly trajectory. In a recent speech, President Vladimir Putin declared his intention to impose higher taxes on wealthy individuals. The explicit goal of this measure is to secure durable funding for the ongoing war in Ukraine. Observers such as Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis, interpret this tax adjustment as confirmation that the Kremlin is positioning itself for an extended period of militarized spending, effectively transferring a growing share of the economic burden onto consumers while continuing to channel substantial resources to the military-industrial sector. This approach indicates both the government’s awareness of the challenge of long-term financing and its reliance on measures that shift the weight of sustaining the war effort onto society at large.
In summary, Russia finds itself at a pivotal moment. Its economy, heavily shaped and constrained by external sanctions and internal policy choices, is expanding at a rate too modest to cover ballooning expenditures. The government faces the extraordinarily difficult task of balancing the competing demands of defense, social welfare, and macroeconomic stability in a context where traditional growth engines have been weakened. Unless a consistent and sustainable pace of 2% or more can be achieved, the country may continue to rely on costly short-term fixes that come at the expense of long-run economic resilience.
Sourse: https://www.businessinsider.com/russia-economy-gdp-growth-defense-social-spend-putin-tax-hike-2025-10
