Since its illegal invasion of Ukraine in 2022, Russia has become the most sanctioned country in the world. Yet its economy has shown remarkable resilience.
In 2024, according to official Russian data—if it can be trusted—the economy grew by 4.3%, outperforming all G7 nations. The UK managed just 1.1%, while the U.S. posted 2.8%.
This growth was largely driven by the Kremlin’s record military spending.
Russian oil exports remained relatively stable in volume as Moscow redirected shipments from Europe toward China and India. A fleet of hard-to-trace “shadow” tankers helped skirt sanctions from other countries.
Meanwhile, the ruble staged a dramatic recovery to become the world’s best-performing currency this year, gaining over 40%, according to Bank of America.
But as 2026 approaches, the broader tone is shifting.
Mounting Pressures
Inflation remains stubbornly high, interest rates have surged to 20%, and firms face an acute labor shortage. Globally, oil prices had declined earlier this year before being driven back up by the ongoing Israel-Iran conflict.
On Thursday, Russia’s economy minister warned that the country is “on the verge of recession” following a phase of “overheated economic activity,” while some observers see signs of a looming collapse.
“Absolute Lies”?
But how realistic are these predictions—and what might they mean for the war?
Evgeny Nadorshin, a Moscow-based economist, told the BBC: “Broadly, it’s going to be an uncomfortable period through the end of 2026. We’ll certainly see some defaults and bankruptcies.”
Still, he expects a “moderate” slowdown and calls talk of an outright collapse “an absolute lie.”
“There’s no question,” he added, “that the Russian economy has endured deeper recessions before.”
Nadorshin points out that unemployment is at a historic low of 2.3%, and he expects it to peak at just 3.5% next year. For comparison, the UK’s unemployment rate was 4.6% in April.
Inflation and Labor Woes
Nevertheless, Nadorshin and others note growing areas of concern. Russia now appears to be entering a period of prolonged economic stagnation.
Inflation hit 9.9% year-on-year through April, driven in part by Western sanctions that raised import prices and by labor shortages that fueled wage hikes.
Russia’s Higher School of Economics estimates that by the end of 2024, the country lacked 2.6 million workers—mostly due to conscription and mass emigration.
In response, the central bank hiked interest rates to record highs to curb inflation. But this has made borrowing for investment increasingly difficult.
Energy Revenues Falling
At the same time, Russia’s oil and gas revenues have slumped under sanctions and lower global prices, falling 35% year-on-year in May, according to official data.
This has widened the budget deficit and forced the government to cut back on infrastructure and public service spending.
“They’ve got a massive military budget that’s untouchable,” said András Tóth-Czifra, a political analyst on Russian affairs. “So they’re redirecting money from crucial projects—roads, railways, utilities. And the quality of those services is already declining sharply.”
Tóth-Czifra notes that while Russia may have adapted to Western sanctions more than many anticipated, the long-term costs remain steep.
Russian companies struggle to import the technology they need. The auto industry is still reeling. And the EU has banned Russian coal imports and is phasing out its reliance on Russian gas by 2027.
“None of this will stop Russia from continuing the war in the short term,” he added. “But it does constrain their economic capacity to grow or diversify in the long run.”
Kremlin Response: “Macroeconomic Stability Is Obvious”
So far, Russian leadership has downplayed these risks. In early June, Kremlin spokesman Dmitry Peskov claimed that the economy’s “macroeconomic stability” and “core strength” were “obvious to everyone.”
In April, he said Russia’s economy was “developing very successfully” thanks to government policies.
What Comes Next?
The outlook remains murky.
Should Russia and Ukraine reach a peace deal this year—a possibility that’s not off the table—it could ease some pressure on Moscow. Former President Donald Trump has said he would seek to normalize ties and even pursue new economic partnerships.
However, according to Dr. Katya Yafimova of the Oxford Institute for Energy Studies, Europe is unlikely to ease sanctions even if a peace deal is reached.
“Even if sanctions are lifted, Europe isn’t going back to Russian energy like before 2022,” she said, “though some limited gas imports might resume.”
Still, she concluded, “the economic picture on the horizon for Moscow is not bright. Re-routing oil exports away from Europe was one thing—but gas is far more complex.”
Bottom Line: Regardless of how the war unfolds, its long-term economic toll on Russia is increasingly clear—and the Kremlin’s options for reversing it are narrowing.
