A look at the current state of the Russian economy

Michael Roberts is an Economist in the City of London and a prolific blogger.

Cross-posted from Michael Roberts’ blog

Russia has elections to its parliament (Duma) starting today. This will also be the first legislative election in Russia to take place amid the ongoing war in Ukraine. At stake are 450 seats in the lower house of the Federal Assembly. Half of the seats (225) are elected by party-list proportional representation with a 5% electoral threshold in number of votes. The other half elected in 225 single-member constituencies (circuits) by first-past-the-post voting (plurality voting).

United Russia, the party of President Putin, will win again, but maybe without a super-majority (310 seats) it needs to make constitutional changes without having to rely on support from other parties. Most of the opposition parties support Putin’s presidency to one degree or another. The Communists usually finish second, but may well perform worse this time as there is a scond Communist ‘A Just Russia’ group that could take some votes.

There is only one party opposed to the war in Ukraine, the ‘liberal’ Yabloko. Yabloko attracts a thin layer of young people who want to express their opposition by voting against United Russia. Yabloko was initially allowed to stand in the party ticket but was then excluded from this and many of its candidates in individual constituencies were also blocked.

Eleven members of the Yabloko have become defendants in criminal cases and 12 party members have been added to the register of foreign agents, among them party chairman Nikolay Rybakov, and his deputies Boris Vishnevskiy, Vladimir Dorokhov, and Lev Shlosberg. Another deputy of Rybakov, Maxim Kruglov  was sentenced to 7 years in prison by the Zamoskvoretsky Court of Moscow on June 24, 2026, for publishing information on social media about civilian casualties in Ukraine during the Russian invasion, including in Mariupol and Bucha. But there are still a handful of Yabloko candidates still standing, any election leaflets for Yabloko are being gobbled up even though distributors can get temporarily arrested by the police for 3 hours just to disrupt their agitation.

The most famous antiwar dissident is the Marxist Boris Kagarlitsky, arrested in July 2023 and now serving five years in a prison colony. But there are others. In November 2025, members of a small Marxist study circle in the city of Ufa were sentenced to 24 years, accused of “terrorism” and “conspiracy to overthrow the government” for reading works of Marx.

But the majority of voters still support the war and with the Duma election result inevitable, apathy dominates and political stagnation is the order of the day. The Russian economy mirrors the poiltical stagnation. The war in Ukraine goes towards completing its fifth year with no resolution in sight. At the start of the war, Western analysts forecast a quick collapse in the economy and the ruble. They continue to forecast calamity five years later. But the Russian economy has survived and has every prospect of being sufficiently stable to continue the war through 2026 and beyond. Russia has a relatively low stock of debt and taxes can be raised again. The central bank can print money and the government can continue to nationalise businesses to strengthen the war economy.

On the other hand, after a boom period based on the massive switch into an arms economy, in the last year or two economic growth has slowed, inflation remains high and civilian investment has been drained for the war effort.  Russia’s economy entered 2026 weaker than it was a year before, with growth declining and oil prices well below budgeted projections. In effect, the Russian economy, like many others in the OECD, is in “stagflation” (where price inflation stays high, but output stagnates).  Russia’s ‘military Keynesianism’ is no longer delivering, as before. 

First-half economic growth was half the pace recorded a year earlier and almost seven times slower than during the wartime economic boom of 2023-24. The war in Iran has temporarily pushed Russia’s oil revenues to their highest level since the start of the war in Ukraine, enabling the federal budget spend to rise 16%, with about one-third going to the military and weapons production.  As a result, Russia’s military-industrial sector has continued to expand.

Civilian manufacturing, however, remains in contraction, falling 3.2% from a year earlier and 4.6% compared with 2024 levels, according to May estimates from the Center for Macroeconomic Analysis and Short-Term Forecasting.

In its ‘baseline scenario’, the Russian Ministry of Economic Development lowered its forecast for Russia’s GDP growth in 2026 to 0.4% from 1.3% and for 2027 to 1.4% from 2.8%. So no collapse, but no boom. Small businesses, already struggling, will remain burdened by higher taxes and finding it difficult to secure credit. There is a severe shortage of labour to sustain businesses. Indeed, 68.7% of small and medium-sized businesses reported loss of revenue in 2026; it is likely many will close down.

Russia’s annual inflation rate rose to 6.3% in August 2026, its highest level since November 2025, up from 6% in the previous month. Inflation remains stubbornly high, so keeping interest rates up, squeezing small firms and households.

However, average wage rises are still outsripping price rises, so for many, especially those working in the arms sectors, real incomes continue to rise.

As for the impact of the war, there are rumours during the Duma election that the government may announce forced mobilisation to cover casualty losses. Putin has denied this will happen. It would certainly increase anti-war sentiment. In the meantime, war spending is now over 7% of annual GDP. Despite increased taxation, the sharply rising spending to pay for the war is draining Russia’s sovereign wealth fund.

But the Russian economy still has enough funding to maintain the war and there is little reason to expect any collapse. It will be a different matter if and when the war ends. War production is basically unproductive for capital accumulation over the long run. Russia’s economy will revert to civilian capital accumulation when the war ends. Then Russia’s productive sectors will be exposed. A post-war slump is very likely.

The Russian economy remains fundamentally natural resource-linked. It relies on extraction rather than manufacturing. Russia remains technologically backward and dependent on high-tech imports. Russia is not a substantial player in any of the cutting-edge technologies, from artificial intelligence to biotechnology. It has yet to produce technologies fit for a competitive export market beyond arms and nuclear energy. The underlying message is that Russian economy and its politics will remain stagnant for the rest of this decade.

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