Russia’s War Economy Is Stalling but Not on Brink of Collapse, The Economist Writes

The publication disputes the assessments of analysts who argue that Russia’s war economy has “exhausted itself,” is experiencing “structural depletion” and has already entered recession.

Even official Russian data show GDP shrinking by 0.2% in the first quarter. The Economist, however, believes these figures are more likely to reflect a combination of temporary factors and a “statistical mirage” than a real downturn.

According to the magazine, the increase in VAT from 20% to 22% in January pushed Russians to make purchases at the end of 2025, causing that quarter’s figures to rise at the expense of the next one. In addition, there were fewer working days in early 2026 than a year earlier, and the weather was poor even by Russian standards.

A more accurate indicator of economic activity, in the publication’s view, prepared by Goldman Sachs, points to weak growth, not contraction. VEB data, in turn, show GDP growth accelerating in March and April—partly thanks to a sharp rise in oil prices. Therefore, The Economist concludes, Russia is almost certainly not in recession.

In other areas, the picture is more mixed. According to the Levada Center, consumer confidence has declined, but before that it had been close to a historic high. Finding work may have become slightly more difficult than a year or two ago, but unemployment remains near a record low—around 2%.

It is becoming harder for Russia to export fossil fuels, which remain the most important part of its economy, as Ukraine steps up attacks on energy infrastructure. Nevertheless, the total volume of goods exports in April, according to the latest available official data, was higher than a year earlier.

By some measures, The Economist notes, the Russian economy even looks better than it did recently. Inflation is roughly half its recent peak of more than 10%. Real wages, already 25% higher than in 2019, continue to rise.

Many companies feel sufficiently stable. According to the magazine, oligarchs appear to be doing even better: sales of luxury cars imported from the West in circumvention of restrictions are rising sharply. Since the start of the year, they have bought 80% more Lamborghinis than in 2025.

At the same time, the economy’s resilience is largely underpinned by large-scale budget stimulus. Last year, the Russian government spent an amount equivalent to 7–8% of GDP on the armed forces. Supporters of the crisis scenario believe that such spending pulls labor resources out of civilian industries and depletes public finances.

The Economist acknowledges these risks, but considers them insufficient for now to produce a large-scale collapse. According to the magazine, Russia’s military spending exceeds the prewar level by only 3–4% of GDP. That is a lot, but not enough to trigger destructive chain reactions across the entire economy. The civilian sector is, rather, staying afloat than contracting.

Russia’s financial problems, in the publication’s assessment, have also not yet become acute. The Kremlin still has several ways to finance the war even if budget revenues fall. The government can raise taxes again, as it has already done with VAT. The deficit, currently around 3% of GDP, can be covered from reserve funds. In addition, the authorities can borrow on the domestic market, which is effectively under state control.

Taking all factors into account, The Economist expects Russian GDP to grow by about 1% this year—roughly the same pace as the economies of France or Canada.

Tougher sanctions could slow that growth slightly. The same will happen if oil prices continue to fall and Ukrainian attacks on Russian oil infrastructure intensify. However, the magazine writes, significantly more radical measures would be needed to truly undermine the ability of Putin’s “war economy” to keep functioning.