The Russian military spending bubble shows signs of the explosion

The Rehetnikov Declaration confirmed what many economists have expected earlier this year: The growing war economy in Russia, after years of challenging imminent stagnation, is finally running the difficult limits of employment, productivity and inflation.

Russia’s invasion of 2022 to Ukraine pushed a large number of sanctions by Western countries, and the departure near Western companies to the nation. But despite its imminent demise predictions, the country’s economy has somewhat well with the follow -up of what the economists call “the Kinzi military”, which provides growth through the financial spending associated with the defense. By pouring a record number of resources in the military industrial complex, which amounted to $ 167 billion in the past year, the Kremlin rose industrial production, and led two consecutive years of gross domestic product growth, and raised wages across the sectors related to the war.

For decades, the Kremlin allowed the Russian defense budget to grow faster than the country’s gross domestic product, but its budget expenditures have It increased significantly Since the beginning of Russia’s invasion of Ukraine. In 2021, the country spent 3.6 % of GDP on the National Defense, according to the World Bank. Now, 6.3 % of GDP goes to defensive spending, or nearly twice the share in the United States.

The Russian military spending bubble created what Ribakova, the economist at the Peterson Institute for International Economy as a game for musical chairs.

“Everyone earns money. Suddenly, people enjoy a higher income, and they can get a real estate loan, or buy Durables. It makes this war popular in a satisfactory way. You want to go music,” she explained.

However, as Nicholas Venton, assistant director at the Center for Strategic and International Studies, warns, “You can only spend a lot before reaching the structural borders in the economy. The great hanging of the Russian economy throughout this period was the lack of chronic labor in the country.”

Before Russia’s invasion of Ukraine, the country reached 4.75 % of unemployment in 2021, with levels that hit a Low 2.4 % record In early 2025, according to the statements reported by the state. But as unemployment decreased, the country also witnessed a mass migration exceeding the number Million peopleHe suffered from major military deaths in hundreds of thousands. These numbers have exacerbated the pre -existed workers’ deficit in Russia due to the low working population of work. In 2022 alone, the number of workers between the ages of 16 and 35 decreased by 1.33 million, and their share of the workforce was the least recorded since 1996.

This deficiency in the labor market Similar Citizens or immigration were also formulated or flocked to defense jobs with profitable rewards. Despite the increase in real wages, productivity did not increase inflation and threats to stagnation outside the army, and suffocating investments in non -defensive sectors.

In the spring of this year, the manufacturing sector in Russia, an industry that also includes defense institutions, suffered from its shrine in nearly three years, as two points decreased from February to March. Likewise, the growth of industrial production in Russia has reached its lowest level in two years, which increased only 0.2 % on an annual basis.

All the time the prices continued to increase, It grows 9.52 % Last year, compared to 7.42 % in 2023. Currently, inflation in Russia sits approximately 10 % and the central bank’s position hawk Infinite prices reach 20 % In June. Meanwhile, the central bank’s growth expectations expect between 1 and 2 % for 2025.

However, interest rates may turn: senior officials and Russian businessmen have repeatedly called for discounts to enhance growth, and President Vladimir Putin urged policy makers to achieve a balance between controlling inflation and enhancing growth.

In the end, in order to change the capabilities of the country’s growth, the country will need to improve work productivity, a difficult achievement amid constant sanctions and great enlargement, according to Alexander Collener, an older colleague at the European Policy Analysis Center.

On the basis of each cliff, the country’s gross domestic product in its peers is far from its peers, closer To that Mexico or Türkiye from Western Europe. Unlike Germany or Japan, Russia’s growth depends greatly on exports of volatile goods, such as oil and the demand that the state moves.

Oil and gas revenues that It represents about 20 % From the country’s gross domestic product, it emphasizes the unstable nature of its financial health. In the first half of 2025, it was forced to decrease oil exports and the low world prices of Kremlin to review his budget deficit. But the growing conflict between Israel and Iran has already pushed oil prices to the top, providing a temporary budget in Russia.

“The war in the Middle East is actually very good for Putin, but this will not save the economy. This means only that the government may continue to maintain the policy of retreat,” says Colliannder, says Coleander. luck.

Ribakova agrees with Colanander. “We have rubbed our hands somewhat because oil was declining because this is the most effective punishment against Russia. Of course, we saw prices cap.”

However, Russia’s oil exports do not provide a solution to the lack of foreign investment in the country and the total decline in American companies. Even with President Donald Trump’s approach to diplomacy with the Kremlin, Charles Copezhan, his oldest colleague in the Foreign Relations Council, sees the return of American companies to Russia as a major bargaining chip.

“Trump says to Vladimir Putin,” if you are ready to conclude a deal and end this war and agree to a ceasefire, I can imagine the return of American companies to Russia. I can imagine the rehabilitation of Vladimir Putin. ”