The Russian economy moved into an unmistakable period of decline in 2025: businesses lost money, the treasury remained solvent only by raising taxes, and inflation was brought under control only thanks to high central bank interest rates. At the same time, the year resolved a few key contradictions. Unlike in 2024, when The Insider described Russian inflation as “embarrassingly high for a country with a strong budget,” 2025 saw a noticeably weaker budget, but lower inflation. Other major economic developments included an obvious downturn in the civilian sector and the sharpest tax increases in years. Together, these four facts form a coherent picture: the Kremlin fears inflation above all else, while other risks — declining production, bankruptcies, payment arrears, the impoverishment of the population, the disloyalty of the elite, the degradation of infrastructure, and even underfunding of the military and social systems — competed for runner-up in a contest with no winners.

cross-posted from: https://mander.xyz/post/45051999

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“Inflation … starts to rise, especially when, as in Russia, government spending does not go toward anything productive that would help the economy grow. Money loses value, consumption becomes harder, real income growth stops, the stimulus runs out, inflation falls, and the economy begins to retreat. In Russia, this stage has lasted since late 2024. That means the economy has not grown in real terms for a year. Some sectors have begun to decline, and consumption is starting to stagnate.”

Fear of inflation and a reluctance to explain to society why it has been forced to make such large and seemingly pointless sacrifices have combined to push the regime toward an austerity policy for 2026 — raising taxes and cutting spending — including on the military, if official budget figures for next year are to be believed.

But this belt-tightening has come too late. The burden placed on the economy’s net donors — the people and enterprises forced to subsidize everyone else — has already become excessive. Under its weight, the productive sector has begun to contract, causing tax revenues levied on profits, turnover, value added, and existing assets to fall.

The Russian economy that enters 2026 is like a group of people standing on a slowly melting ice floe. The support structure is melting on its own, but the unfortunate polar explorers are also constantly breaking off ever-larger chunks and, out of spite, throwing them at equally desperate people on a neighboring floe. It is hard even to imagine the effort and sacrifices that will be required to return to normality once the leadership on the “Russia” ice floe inevitably changes.

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    • Anyone@mander.xyzEnglish
      3·
      1 day ago

      We’ve been hearing it for a long time, and we’ll most likely continue to hear it for a long time in the future. Most economists didn’t predict something like a sudden collapse in Russia soon after the full-scale invasion of Ukraine.

      One of my favourite elaboration is an interview with Russian economist Natalia Zubarevich in 2023 who said back then about her country, ‘There Will Be no Collapses, but Rather a Viscous, Slow Sinking into Backwardness’.

      And in a chapter in the 2023 book on “Russia’s Imperial Endeavor and Its Geopolitical Consequences” (highly recommended read), Hungarian scholar Dóra Győrffy concludes (opens pdf):

      Although Western sanctions imposed on Russia did not immediately cripple the Russian economy, this does not mean they are ineffective. Russia has lost its most pros-perous markets in the EU for its energy products, while trade reorientation towards Asia faces major obstacles given the limitations of transport capacities such as gas pipelines or shipping. The outlook is even worse for its long-term growth prospects. The sanctions and the war have undermined all major factors of growth including access to capital and technology, the available quantity and quality of labor, the institutional system, and freedom. The war has made Russia a neo-backward country.

      The relative certainty of the long-term decline of Russia stands in contrast to the uncertainties surrounding the prospects of post-war Ukraine. While success is far from guaranteed, Ukraine has a window of opportunity to leave its post-Soviet patronal structures behind, and build a resilient democracy, rule of law, and a strong market economy with Western support. The return of refugees, the inflow of Western capital for reconstruction, access to technology, assistance in institution building, and a strong social commitment to the idea of freedom provide a strong foundation for a new Ukraine embedded in the transatlantic alliance. Achieving this vision is the shared hope and responsibility of Ukraine and the West in their fight against autocracies.