GeoPrism

For three years after February 2022, Russia’s wartime economy seemed to defy every Western expectation. GDP contracted a modest 1.4 per cent in 2022 — against the IMF’s initial projection of 8.5 per cent — and then surged: 4.1 per cent in 2023, 4.3 per cent in 2024¹ . Moscow cited these figures as proof that sanctions had failed. On 12 May 2026, that narrative was definitively punctured. Deputy Prime Minister Alexander Novak announced that Russia’s Economy Ministry had revised its 2026 GDP growth forecast to just 0.4 per cent, down from a previous estimate of 1.3 per cent, while simultaneously revealing that the economy had already contracted by 0.3 per cent in Q1 2026 — its first quarterly decline since early 2023². This commentary argues that these figures are not a surprise. They are the arithmetically predictable endpoint of a growth model built entirely on military spending, hydrocarbon rents, and borrowed fiscal time.

The engine behind 2023–2024’s impressive headline growth is not difficult to identify, as shown in Table 2 and Figure 2. According to SIPRI’s Trends in World Military Expenditure 2025³, Russia’s military spending grew by 5.9 per cent in real terms to $190 billion in 2025 — equivalent to 7.5 per cent of GDP, the highest military burden since Soviet collapse. SIPRI researcher Lorenzo Scarazzato noted that ‘in 2025 military expenditure as a share of government spending reached the highest level ever recorded’ in Russia. Between 2021 and 2025, the combined defence-and-security share of federal spending rose from 24 per cent to 40.3 per cent⁴.

This is militarised Keynesianism in its purest form: the government injecting demand into an economy at full employment, producing output — missiles, armoured vehicles, ammunition — that registers as GDP growth when manufactured and generates zero commercial return thereafter. A missile added to national accounts when built does not build future prosperity when fired. The Bank of Russia’s decision to hold its key rate at 21 per cent through October 2024 — the highest in over twenty years — and only gradually cut to 14.5 per cent by April 2026 confirms that this spending binge generated severe and persistent inflationary overheating.

The fiscal foundations of this model are visibly crumbling, as Table 3 demonstrates. Russia’s federal oil and gas revenues — the primary fiscal lifeline of the rentier state — fell by 23.8 per cent in 2025 to 8.48 trillion roubles, their lowest share of total federal revenue in over two decades⁵. Urals crude fell below $44 per barrel in late 2025 following OFAC secondary sanctions on Rosneft and Lukoil. The 2025 federal deficit reached 5.6 trillion roubles — 2.6 per cent of GDP — approximately 4.7 times the originally budgeted shortfall⁶. The National Welfare Fund’s liquid assets fell to approximately 1.5 per cent of GDP by end-March 2025⁷ .

This is a state funding a war of unlimited ambition with rapidly diminishing oil revenues, a depleted sovereign wealth fund, and a civilian economy that contracted in Q1 2026. The BOFIT Forecast (March 2026) warns that growth in fixed capital investment ‘could come to a standstill’ in 2026, as firms outside defence chains — squeezed by high interest rates, rising wages, and heavier taxes — are ‘not able to make significant investments during the forecast period.’

Beneath the fiscal crisis lies a deeper structural emergency documented in Table 4. Russia’s unemployment rate of 2.2 per cent in March 2026 is not evidence of economic health. It is a symptom of a labour supply that has been structurally destroyed. The Russian labour and trade ministry estimated that the manufacturing sector alone was short of 2 million workers in 2025, with the overall deficit projected to exceed 10 million by end-decade⁸. The Spectator (May 2026) reports that 720,000 workers aged 25–29 exited the workforce in 2022 alone, reflecting the demographic shadow of Russia’s 1990s birth-rate collapse.

An estimated 650,000 to over one million skilled professionals — from IT, medicine, and finance — have emigrated since February 2022⁹. Labour compensation reached 50.2 per cent of GDP in Q1 2025¹⁰, with wages rising 14.5 per cent nominally without productivity gains — a classic structural wage-price dynamic that no amount of monetary tightening can sustainably resolve without addressing the underlying supply collapse.

The data assembled in Tables 1 through 4 and Figures 1 and 2 converge on a single verdict: Russia’s wartime growth was never genuine economic expansion. It was a fiscal sugar rush — the temporary effect of pouring $190 billion of military spending into an economy already at capacity, generating demand that a shrinking labour force and sanction-constrained technology base could not supply without severe inflation and structural distortion.

Now, as oil revenues decline, the fiscal buffer contracts, the labour market deteriorates structurally, and the civilian economy visibly weakens — Q1 2026 contracted 0.3 per cent, and the government has revised its own 2026 forecast to 0.4 per cent — the bill has arrived. Russia is not collapsing. But it is doing something potentially more consequential: exhausting, slowly and structurally, the economic capacity that any post-war recovery would require. The sanctions regime did not produce the rapid shock its architects promised. What it has produced, the confirmed data now shows, is a slow-motion structural reckoning that will define the limits of Russian economic power for a generation.

Vikas Bhardwaj is a scholar of international political economy, holding a Ph.D.
and M.Phil. from the Centre for Russian and Central Asian Studies, School of International Studies, Jawaharlal Nehru University (JNU), New Delhi. His work focuses on economic statecraft, sanctions, energy geopolitics, and global economic governance. He has worked as a researcher with numerous institutions, including the Indian Institute of Public Administration (IIPA), contributing to multiple policy evaluation projects commissioned
by Government of India ministries. Bhardwaj holds nine academic degrees and has published in international peer-reviewed journals on the Russian economy, geopolitical conflict, and shifting global power dynamics.

1. (Rosstat, April 2025) ↩︎
2. (Reuters, 12 May 2026; Moscow Times, 12 May 2026) ↩︎
3. (Fact Sheet, 27 April 2026) ↩︎
4. (Meduza, 28 January 2026) ↩︎
5. (Russian Ministry of Finance, January 2026 execution report, cited by Meduza, 28 January 2026) ↩︎
6. (BOFIT Russia Weekly, February 2026) ↩︎
7. (Oxford Institute for Energy Studies, February 2026) ↩︎
8. (Foreign Policy, April 2026) ↩︎
9. (Bush Center, October 2024) ↩︎
10. (Rosstat, cited by Moscow Times, July 2025) ↩︎