Defense spending represents 32% of the total budget expenses of 2025. There are more than 130 billion euros, whose spiral cost of war brings increasing economic pain to Russia, to add to labor shortages. All this asphyxis the economy.
At a time when sanctions against Russia are at the top of the European Union Agenda – which prepares the 19th package – and have been (but it is not known if they are still) in the United States, the Russian economy continues to show signs of resilience that, and can hide larger ills that see, have left the surprised economic analysts.
Growth is evidently driven by military spending, but by replacing Western business partners with others, such as China and India – that have sustained the war effort. But this is also a characteristic that, in the medium term, will be pernicious to the Russian economy: trade with those partners is based on gross oil (increasingly important as a result of Ukrainian attacks on Russian refineries), fuels and their derivatives, which are sold at a balance price. The European Union is not entitled to this discount of ‘friendship’ – which implies a complex situation: the bloc has not yet stopped buying Russian oil, further contributing to the financing of the war, since it has no discounts.
On the other hand, Russia faces significant challenges: high inflation, labor shortages – diverted to war effort and the risk of long -term stagnation due to the focus in the military sector, the lack of investment in civil sectors and reduced access to Western technology. Inflation affected purchasing power and forced the Russian Central Bank to increase interest rates to a level that discourages private investment and makes it difficult to grow the non -military sector.
The automotive, construction and steel industry sectors are, according to analysts, of the most affected. In addition, foreign investment disappeared – and if that, at first after the war began, it was a positive factor, as foreign companies tried to leave Russia at any (always low) price, inflation and domestic market shrinkage, business cable that seemed enticing.
Sanctions, however, play their role. It is evidently an obstacle to technology transfer – preventing the modernization of the economy – captured investments and deposits maintained by Russian investors outside the borders, removed market from exports and induced a shroud of currency.
For analysts, long-term prospects are unfavorable: experts advance a slower potential growth scenario and a great difficulty in recovering pre-war performance levels.
According to Trading Economics, Russian GDP expanded 4.1% by 2024, the same rate as the previous year, supported by increased spending and investment in the military sector.
Russia increased state -owned spending on national defense in a quarter in 2025 to 6.3% of GDP, the highest level from the Cold War. Defense spending represents 32% of the total budget expenses of 2025. Anything like over 130 billion euros, whose spiral cost of war brings increasing economic pain to Russia.
GDP growth is expected to reach 1.5% at the end of 2025 and should not go beyond 1.2% the following year. But with the first quarter of the year in full contraction (GDP contracted 3.1% in the annualized base and 0.6% in the quarterly), although the forecast is still positive, it seems that the economy is rapidly slowing, at a time when inflation reached 8.8% last July. A fact that is worth retaining: between February 2020, the date of the invasion of Ukraine, and July 2025, Russia accumulated $ 915 billion with the sale of oil, gas and coal.
But exports of oil, gas and minerals are no longer enough salvation board. The scarcity of labor and the high interest rates to combat inflation, accelerated in a context of unprecedented military expenses, are asphyxiating economic perspectives.
Geopolitical reversal
However, the Russian government has been trying to convince the Russians and the West that the resistance of its economy is, to all titles, remarkable. However, it evidences that Vladimir Putin has already realized that he cannot continue to drag a war economy. Apparently, the most perennial measure will be to insist on the development of economic relations with China, right away, but with other countries that are available for it.
This week, at the Summit of the Shanghai Cooperation Organization (OCX), a turn signal was given: a New World Order of China gains strength with Russia and India after the scale of Trump -imposed tariffs, which threatens 50% rates on Indian products in response to Russian oil purchase by India.
XI Jinping defends multilateralism against US tariffs, proposing to expand space for Asian cooperation to gain institutional weight, with direct reflexes in energy chains and international trade. Putin supports China’s New World Order and the interest of new countries in joining the organization shows the block’s potential as an alternative to western -dominated structures.
