Economic Stagnation Hits Russia — Yet War Funding Endures
As the Kremlin pours resources into its war against Ukraine, questions about the true state of Russia’s wartime economy persist. In a recent article for The Gaze, Oleksiy Kushch, financial analyst and expert at United Ukraine Think Tank, argues that while Russia has avoided an immediate financial collapse, economic stagnation is now taking hold.
According to Kushch, Russia has not yet resorted to its most dangerous economic “weapons” — or “deadly gifts” — to finance the war, such as a ballooning deficit, unsustainable debt, or burdensome taxation.
• The budget deficit stood at 1.7% of GDP in 2024, down from 2.3% in 2022.
• Public debt was just 16.95% of GDP in 2024 — even lower than pre-war levels.
• Income tax remains capped at 15% for higher earners.
Instead, Kushch notes that war spending is largely sustained through oil and gas revenues and corporate bank lending.
However, signs of stress are becoming more visible. Industrial output has plateaued, and civilian sectors like construction and automotive production are in decline. Citing official Russian data, Kushch notes:
“The transition to stagnation has taken place. According to Rosstat, the sharp decline in January (2025 - note) at -3.2%… returned output to about the level of early fall (2024).”
He warns that the economy is now shifting from 4% wartime GDP growth to a potential “hard landing”: “There is a certain probability of a ‘hard landing’ of the Russian economy with a reduction in growth rates to 0%.”
While this won’t stop the war in the near term, Kushch sees strategic implications:
“Industrial stagnation… will not stop the war shortly, but it can significantly reduce Russia’s potential to escalate hostilities.”
Read the full article by Oleksiy Kushch on The Gaze: War and the “Deadly Gifts” of the Russian Economy: Should We Expect a Hard Landing?