Everyone is talking about the fact that the Russian economy is now definitely “bulging at the seams” and Vladimir Putin will be forced to stop the war. Is this true? Economists answer on it (spoiler — nope)

In August and early September of this year, news about the troubles in the Russian economy and negative forecasts appeared one after another. After the number of attacks by Ukrainian drones on Russian refineries increased, gasoline prices rose in some Russian regions, while in others it began to be interrupted. For example, in the annexed Crimea it was sold by coupons. This and other news provoked dozens of comments that the Russian economy is in crisis, so deep, that Vladimir Putin will be forced to compromise in negotiations (and not just endlessly demand a veiled capitulation from Ukraine). How correct is this? To understand this, Babel editor Glib Gusev collected public comments from three experts with varying degrees of closeness to the Russian authorities: Moscow State University professor Natalia Zubarevich (lives in Russia), former deputy chairman of the Central Bank of the Russian Federation Sergei Aleksashenko (left Russia in 2013), and senior analyst at the American RAND Center Mark Stalczynski (has been writing about Russia since 2021).

The Russian economy is heading for recession — that is, a situation where its real GDP will fall for two consecutive quarters.

This is what economist and professor of the Department of Economic and Social Geography at Moscow State University Natalia Zubarevich says. Natalia Zubarevich lives in Russia. She is a public figure, and is unlikely to be able to speak out about problems truly openly.

That is why we drew attention to her negative assessment — it is obvious that even an expert loyal to the government is forced to admit that there are problems in the Russian economy.

In her forecast, Natalia Zubarevich relies on the latest data from “Rosstat”. She explains that the economic bubble in Russia has burst, which was associated with the return of capital due to sanctions and initial payments to those Russian residents who agreed to become war criminals under contract.

There is no longer a shortage of labour in the “civilian sector”. Official unemployment is still low, but the number of vacancies on job search sites has fallen by a quarter. Automobile plants are switching to a four-day work week, and part-time employment is growing in some regions. Housing construction is no longer growing across the country.

Sanctions are causing investment levels to fall in regions where oil and gas are produced, such as Western Siberia.

At the same time, the Russian economy is still years away from a truly serious crisis.

This state is according to Sergei Aleksashenko, a former deputy chairman of the Central Bank of the Russian Federation and one of the former experts of the international working group on sanctions against Russia (the “Yermak-McFaul group”). He compares Putin’s technocratic officials, such as Finance Minister Anton Siluanov and Central Bank Governor Elvira Nabiullina, to Nazi functionaries Albert Speer and Hjalmar Schacht.

Moreover, he predicts that for at least a few more years of full-scale war, they will balance Russia’s state finances without any difficulty.

The most important factor enabling Russia to wage war has been the National Welfare Fund (NWF), which for many years has been the recipient of “surplus” money from mineral extraction. Russia now finances its budget deficit from this fund (another source of financing is domestic debt).

Since the start of the war, its liquid assets have declined by almost two-thirds. However, it still has almost $50 billion left to cover the deficit.

In 2026 and 2027, the Russian government plans to run a budget deficit of $22 billion and $27 billion, respectively. This means that the National Welfare Fund will still be empty, but not for the first two years.

And even then, the government will have enough tools to finance the war (for example, by letting the ruble depreciate).

Vladimir Putin has no plans to stop the war. Indirect evidence of this is the draft Russian budget for 2025-2027, which was analyzed by RAND senior analyst Mark Stalczynski.

He notes that the Russian military economy relies heavily on the export of crude oil by sea. Over the three years of the great war, these exports were blocked in several ways: they set a “price ceiling” and imposed sanctions against the tanker fleet.

However, Russia has adapted to the export sanctions and supplies oil to China, India, Turkey, Singapore and the UAE.

The fact that Vladimir Putin does not plan to stop is evidenced by the spending plan for “national defense”. Russia will continue to spend about $130 billion a year on it — this money will flow into military production.

With the help of sanctions, it was possible to “freeze” the Russian military-industrial complex at its current level of development. But it will continue to produce tanks, missiles, and kamikaze drones.