<\/p>\n
Five years into the full-scale war, the Russian economy has accumulated serious systemic problems. But that still does not mean it\u00a0will collapse tomorrow: degradation takes time, and many of\u00a0the mines that have been laid are slow to\u00a0detonate. Economic indicators can genuinely be\u00a0presented in\u00a0an\u00a0optimistic light as\u00a0evidence of\u00a0strength and resilience. But it\u00a0is\u00a0equally true that they conceal vulnerabilities and threats \u2014 above all for ordinary Russians. We\u00a0break down what is\u00a0happening in\u00a0the economy through five examples: the budget deficit, slowing inflation, low unemployment, a\u00a0strong ruble, and GDP trends.<\/p>\n
The budget deficit is\u00a0growing. But will the Middle East war fix it?<\/p>\n
The war in\u00a0the Middle East upended<\/a> the government\u2019s budget plans: spending cuts and a\u00a0reduction of\u00a0the cutoff price in\u00a0the that had been under discussion<\/a> since winter are now being shelved. The grim outlook brightened sharply as\u00a0oil prices soared: in\u00a0the first half of\u00a0April, Russian Urals crude averaged<\/a> $106.3 per barrel, against the $59 built into the budget.<\/p>\n Donald Trump\u2019s decision to\u00a0go\u00a0to\u00a0war with Iran and Tehran\u2019s closure of\u00a0the Strait of\u00a0Hormuz swung the pendulum of\u00a0Russia\u2019s treasury sharply in\u00a0the opposite direction. Anticipating additional oil and gas revenues, the government in\u00a0March 2026 ramped up<\/a> budget spending by\u00a044 percent compared to\u00a0March 2025 \u2014 4.7 trillion rubles versus 3.25 trillion \u2014 and above both February (4.1 trillion) and January 2026 (4.1 trillion). Government procurement, including defense orders, grew by\u00a0nearly 40 percent year-on-year in\u00a0the first three months of\u00a0the year.<\/p>\n At\u00a0the same time, the Finance Ministry suspended<\/a> purchases of\u00a0foreign currency (yuan) and gold from oil and gas windfall revenues for the National Wealth Fund (NWF) from March 30 . Russian authorities allowed themselves to\u00a0revert to\u00a0the pro-inflationary wartime fiscal policy of\u00a0 money here and now.<\/p>\n The federal budget deficit for the first three months of\u00a02026 reached 4.6 trillion rubles \u2014 2.3 times the first-quarter 2025 deficit of\u00a01.9 trillion. Oil and gas revenues for March are calculated on\u00a0a\u00a0February baseline, so\u00a0the closure of\u00a0the Strait of\u00a0Hormuz has not yet shown up\u00a0in\u00a0those figures or\u00a0in\u00a0the deficit.<\/p>\n The first April data show<\/a> that oil and gas revenues to\u00a0the Russian budget in\u00a0April (calculated on\u00a0a\u00a0March baseline) totaled 855.6 billion rubles \u2014 nearly 40 percent more than in\u00a0March, but 21.2 percent less than a\u00a0year earlier. A\u00a0large portion of\u00a0the gains from the Middle East war has so\u00a0far flowed to\u00a0Russian oil companies, as\u00a0the government was returning money to\u00a0them through the and through reverse excise taxes. The Russian budget ultimately received only an\u00a0additional 21 billion rubles. The price of\u00a0Russian Urals for tax purposes in\u00a0April settled<\/a> at\u00a0$77 per barrel, against a\u00a0baseline of\u00a0$59; in\u00a0May it\u00a0is\u00a0expected to\u00a0reach $95. Finance Minister Anton Siluanov expects<\/a> an\u00a0additional 200 billion rubles in\u00a0oil and gas revenues.<\/p>\n The deficit figures are large, but based on\u00a0the current picture the government should be\u00a0able to\u00a0meet its budget plan, which provides for a\u00a0deficit that Prime Minister Mikhail Mishustin has called \u201cacceptable\u201d<\/a> \u2014 3.8 trillion rubles, or\u00a01.3 percent of\u00a0GDP. The key question is\u00a0what comes next: at\u00a0what cost can the budget and the economy sustain another year of\u00a0war? We\u00a0will return to\u00a0that below.<\/p>\n Inflation is\u00a0slowing. But what happens if\u00a0the central bank cuts the key rate?<\/p>\n A\u00a0double-digit key rate, slowing economic growth, and weakening consumer demand have combined to\u00a0produce a\u00a0slow but real decline in\u00a0inflation. Unfortunately for Russia\u2019s central bank, inflation is\u00a0tracking along the upper end of\u00a0the regulator\u2019s forecast \u2014 at\u00a0around 5.5 percent \u2014 which narrows the room for further rate cuts, central bank Governor Elvira Nabiullina said<\/a> following the regulator\u2019s April board meeting.<\/p>\n Russia\u2019s central bank cut the rate by\u00a0half a\u00a0step, to\u00a014.5 percent annually, while raising the lower bound of\u00a0its forecast for the average key rate in\u00a02026 from 13.5\u201314.5 percent to\u00a014\u201314.5 percent \u2014 a\u00a0signal that cuts are already close to\u00a0their limit.<\/p>\n The high rate is\u00a0hitting civilian sectors hardest, as\u00a0credit remains too expensive throughout the economy. Overdue debt among Russian enterprises has exceeded<\/a> eight trillion rubles, equivalent to\u00a03.8 percent of\u00a0GDP, compared with 2.4 percent of\u00a0GDP at\u00a0the start of\u00a02022.<\/p>\n Inflation expectations, according to\u00a0central bank surveys, remain high and have consistently held<\/a> at\u00a0around 13 percent, meaning any easing of\u00a0the key rate would trigger a\u00a0rapid, nearly lag-free acceleration in\u00a0price growth, said<\/a> Oleg Vyugin, an\u00a0economist and former deputy finance minister and first deputy governor of\u00a0Russia\u2019s central bank.<\/p>\n The head of\u00a0Swedish military intelligence, Thomas Nilsson, claimed<\/a> in\u00a0an\u00a0interview with the Financial Times that the Kremlin was systematically falsifying statistics and that the central bank was understating inflation, which he\u00a0said was running at\u00a0around 15 percent. But a\u00a0price acceleration of\u00a0that magnitude would need to\u00a0be\u00a0confirmed by\u00a0other economic indicators: the ruble would be\u00a0far stronger in\u00a0that scenario, import figures would be\u00a0higher, and retail trade would be\u00a0contracting far more dramatically, argued<\/a> Alexander Kolyandr, a\u00a0researcher at\u00a0the Center for European Policy Analysis (CEPA). \u201cInflation of\u00a0that magnitude acts as\u00a0a\u00a0tax on\u00a0household consumption, yet the physical volume of\u00a0retail trade is\u00a0falling only slightly \u2014 which is\u00a0again consistent with a\u00a0slowing economy, not one drowning in\u00a0a\u00a0double-digit price spiral,\u201d he\u00a0said.<\/p>\n Unemployment is\u00a0at\u00a0a\u00a0record\u00a0low. But does that actually help the economy?<\/p>\n Vladimir Putin regularly cites<\/a> record-low unemployment as\u00a0a\u00a0sign of\u00a0economic resilience. \u201cThe unemployment rate, despite the overall economic dynamics, continues to\u00a0hold at\u00a0a\u00a0low level. Unemployment is\u00a0currently at\u00a02.1 percent. This also reflects the fact that our labor market is\u00a0changing, with flexible, platform-based forms of\u00a0employment developing,\u201d he\u00a0said<\/a> at\u00a0an\u00a0economics meeting in\u00a0mid-April. In\u00a0reality, the extremely low unemployment figure reflects a\u00a0severe labor shortage \u2014 a\u00a0serious problem in\u00a0itself \u2014 driven by\u00a0the war, , and a\u00a0decline in\u00a0migration from Central Asia that is\u00a0not offsetting Russia\u2019s natural population decline.<\/p>\n At\u00a0the same time, the number of\u00a0workers in\u00a0vulnerable labor market positions \u2014 those employed part-time \u2014 is\u00a0growing, analysts at<\/a> the Center for Macroeconomic Analysis and Short-Term Forecasting () say. The decline in\u00a0actual labor utilization is\u00a0occurring alongside declining capacity utilization. According to\u00a0calculations<\/a> by\u00a0Russia\u2019s central bank, the number of\u00a0workers employed part-time or\u00a0placed on\u00a0forced leave in\u00a0the fourth quarter of\u00a02025 reached 1.58 million \u2014 the highest level since spring 2020, when Russia introduced pandemic restrictions due to\u00a0COVID-19.<\/p>\n Children not born because of\u00a0men killed in\u00a0the war, or\u00a0for other reasons, will not enter the labor market in\u00a0the 2040s and 2050s; the war has thus turned the labor shortage into a\u00a0structural problem. The population continues to\u00a0age, meaning demographic pressures will carry long-term consequences \u2014 up\u00a0to\u00a0and including the need for another increase in\u00a0the retirement age, driven by\u00a0insufficient funds to\u00a0sustain pension payments without eroding their purchasing power. The NWF was formally established<\/a> in\u00a02008 to\u00a0reduce the pension burden on\u00a0the federal budget, but more pressing uses were found for oil and gas windfall revenues \u2014 covering the growing budget deficit caused by\u00a0outsized military spending. The NWF\u2019s liquid assets have shrunk from 9.738 trillion rubles as\u00a0of\u00a0March 1, 2022<\/a> to\u00a03.889 trillion rubles as\u00a0of\u00a0April 1, 2026<\/a> \u2014 a\u00a0decline of\u00a0more than two and a\u00a0half times.<\/p>\n The ruble remains strong. But why does that displease both exporters and banks?<\/p>\n The Russian ruble, buoyed by\u00a0the suspension of\u00a0currency purchases for the NWF\u2019s sovereign reserves under the fiscal rule and by\u00a0soaring oil prices, has strengthened from 82 to\u00a075 rubles to\u00a0the dollar since late March.<\/p>\n A\u00a0strong ruble displeases the Finance Ministry \u2014 it\u00a0reduces the ruble value of\u00a0oil and gas budget revenues \u2014 and state banks alike. The equilibrium rate should be\u00a0in\u00a0the range of\u00a098\u2013105 rubles to\u00a0the dollar, Sberbank chief Herman Gref believes<\/a>.<\/p>\n The public, on\u00a0the other hand, welcomes a\u00a0strong ruble because it\u00a0holds down the cost of\u00a0imports and non-food inflation.<\/p>\n The Finance Ministry\u2019s resumption of\u00a0 from May will not cause a\u00a0sharp weakening of\u00a0the ruble \u2014 at\u00a0most it\u00a0will slow further appreciation, said<\/a> economist Dmitry Polevoy. Regular operations under the fiscal rule absorb about two-thirds of\u00a0the oil and gas sector\u2019s revenue increase, leaving a\u00a0third with the oil and gas companies. Combined with higher revenues from other exporters not covered by\u00a0the fiscal rule, this should increase the supply of\u00a0foreign currency on\u00a0the market, he\u00a0said. Demand for foreign currency, however, is\u00a0unlikely to\u00a0rise significantly given the weakening economy and, consequently, imports, as\u00a0well as\u00a0the effects of\u00a0the high rate and sanctions restrictions.<\/p>\n \u201cSo\u00a0the resumption of\u00a0regular operations poses no\u00a0threat to\u00a0the ruble. Finance Ministry operations merely eliminate the risk of\u00a0excessive ruble appreciation toward 70 to\u00a0the dollar and below, but do\u00a0not remove it\u00a0entirely. If\u00a0the external environment remains the same (a\u00a0tax oil price of\u00a0around $95\u2013100 per barrel) through the end of\u00a0the second half of\u00a02026, the ruble could even briefly strengthen from its current 75\u201376 to\u00a0the dollar in\u00a0May and June,\u201d Polevoy said.<\/p>\n The economy is\u00a0slowing because of\u00a0a\u00a0\u2018calendar factor.\u2019 But why does no\u00a0one believe that?<\/p>\n In\u00a0the first quarter of\u00a02026, Russian GDP fell year-on-year, according to\u00a0the Economic Development Ministry\u2019s estimate. The government explained to\u00a0Putin, and he\u00a0repeated<\/a>, that the cause was a\u00a0calendar factor: \u201cWe\u00a0know this well \u2014 in\u00a0January of\u00a0this year there were two fewer working days than last year, and in\u00a0February there was one fewer working day.\u201d<\/p>\n But the economy is\u00a0not slowing because of\u00a0two working days in\u00a0January and one in\u00a0February \u2014 and no\u00a0one seriously believed that. Putin himself acknowledged as\u00a0much, adding that \u201cobviously, it\u00a0is\u00a0far from only those days that determine business and investment activity in\u00a0the country,\u201d without specifying what else he\u00a0had in\u00a0mind.<\/p>\n By\u00a02025 it\u00a0had already become clear<\/a> that the economy was exhausted by\u00a0the war, with its labor, financial, and material reserves running\u00a0out. In\u00a0industry, growth persists only in\u00a0defense sectors generously supported by\u00a0the state budget; most civilian production is\u00a0stagnating or\u00a0declining, with sectors oriented toward investment demand suffering the sharpest falls. In\u00a02023\u20132024, GDP growth fueled by\u00a0unchecked military spending \u2014 which drove inflation \u2014 held above 4 percent, a\u00a0level not seen in\u00a0the entire preceding decade except for the pre-war year of\u00a02021. In\u00a02025, the economy slowed to\u00a01 percent growth.<\/p>\n For 2026, the Economic Development Ministry is\u00a0for now maintaining its September forecast of\u00a01.3 percent GDP growth. Russia\u2019s central bank expects growth in\u00a0the range of\u00a00.5\u20131.5 percent. The IMF in\u00a0mid-April, against the backdrop of\u00a0soaring oil prices, raised its forecast for Russian GDP growth from 0.8 percent to\u00a01.1 percent. Looking conservative by\u00a0comparison is\u00a0the updated CMASF forecast, revised from 0.9\u20131.3 percent in\u00a0the March version to\u00a00.5\u20130.7 percent in\u00a0the April version, as\u00a0the center\u2019s report shows<\/a>.<\/p>\n Mid-2026 will mark another , in\u00a0the view of\u00a0Vyugin \u2014 the former deputy finance minister and first deputy governor of\u00a0Russia\u2019s central bank: continuing the course of\u00a0high budget spending primarily directed at\u00a0financing the war in\u00a0Ukraine \u201cmay leave no\u00a0hope for even modest but sustainable economic growth in\u00a02027, and the need to\u00a0return to\u00a0fighting inflation will become more acute than ever.\u201d \u201cThis will no\u00a0longer be\u00a0a\u00a0technocratic choice but a\u00a0purely political one between continuing to\u00a0finance the \u2019special military operation\u2019 and a\u00a0peace agreement,\u201d he\u00a0said.<\/p>\n Choosing to\u00a0continue the war in\u00a0Ukraine would, in\u00a0Vyugin\u2019s view, require another round of\u00a0tax increases as\u00a0part of\u00a0the preparation of\u00a0the 2027 budget. A\u00a0further decline in\u00a0the country\u2019s economic potential would be\u00a0inevitable, and restrictions on\u00a0the use of\u00a0assets in\u00a0the civilian sector \u2014 meaning an\u00a0expansion of\u00a0state intervention in\u00a0the private economy \u2014 would be\u00a0highly likely, the former deputy central bank governor warned.<\/p>\n At\u00a0Meduza, we\u00a0are committed to\u00a0transparency about our use of\u00a0artificial intelligence in\u00a0the newsroom. The story you\u2019re reading was written by\u00a0one of\u00a0our living, breathing journalists and translated from Russian using an\u00a0AI\u00a0model configured to\u00a0follow our strict editorial standards. This translation process is\u00a0the result of\u00a0extensive testing and refinements to\u00a0ensure our English-language coverage is\u00a0timely and accurate. A\u00a0Meduza editor reviews every draft before publication.<\/p>\n If\u00a0you find any errors in\u00a0this translation, please contact us\u00a0at\u00a0[email\u00a0protected]<\/a>.<\/p>\n