In 2022, the extensive interdependencies between Russia and the West led many to assume that Western sanctions would lead to a rapid breakdown of the Russian economy. But this breakdown never happened: On the contrary, Russia enjoyed an economic boom in 2023 and 2024. The market-based adjustment to sanctions led to Russia finding new economic relations, primarily with China and the Global South, and efficiently evading sanctions. The capital frozen in Russia by the sanctions served as investment capital that, together with the rise in military expenditures and increasing real wages, accelerated growth.

In 2025, this boom petered out. Even the official economic forecasts published in May predicted growth of only 0.4 percent for 2026 – almost no growth at all. Three causes contributed to this development.

What Is Weakening the Russian Economy?

Firstly, Russia is suffering from a shortage of labor resources. With an unemployment rate of about two percent, Russia simply has no workers that could be used to further increase production. That the state is continuing to use massive economic benefits to entice people to volunteer for the front lines (thereby making them unavailable in the productive economy) does not help this situation.

Secondly, the state is intruding more and more into economic activities. This is not evidence of some systematic trajectory toward “more state” or even a return to a planned economy, but rather reflects the actions of certain bureaucrats. On the one hand, the war has strengthened the positions of groups in the state apparatus who are promoting massive restrictions in the private lives of citizens for the purposes of security and state control; such groups seem to always win out when it comes to ongoing bureaucratic struggles. On the other hand, the officials who are under enormous pressure to implement the political goals of the government are increasingly resorting to non-market-based instruments. These promise quick results, but turn out to have disastrous effects on economic stability. One example is the massive restriction of the Internet, which comes at a high economic price for Russia.

Thirdly, Russia is undergoing a new redistribution conflict over profitable enterprises and factories. The state prosecutor’s office is increasingly demanding the factories to be converted into state ownership, often on dubious grounds. This is creating uncertainty among companies and reduces economic output.

Persistent Stagnation Rather than Sudden Collapse

These developments suggest that a long-term stagnation process is underway, rather than an impending collapse. A collapse, meaning a massive and rapid reduction in economic output, would encourage much more aggressive and deeper state intervention in economic activities, for example, printing unlimited amounts of currency that would lead to hyperinflation, or a complete suspension of market-based coordination mechanisms.

As long as markets are basically functional in Russia, they will adjust and keep the economy running, even if it means economic growth is out of the question. This also means that despite economic problems, Putin will continue to have money for his war in Ukraine for the foreseeable future.

The original German version appeared in campus.leben, the online magazine published by Freie Universität Berlin.