26/09/2025
🇷🇺 Russia's economy has become heavily militarized, with defense spending accounting for around 8% of its GDP and up to 40% of its budget. This significant allocation towards military expenditure has become a key driver of Russia's economic growth, particularly since the conflict with Ukraine began. The military-industrial complex has seen substantial growth, with production increases of up to 60% in war-related industries compared to pre-war levels.
However, this shift towards militarization poses significant challenges for Russia's economy in the long run. Some potential risks include;
- Distorted Economic Structure: Excessive reliance on the military industry could lead to structural imbalances and limit investment in other sectors.
- Inflation and Labor Shortages: Increased government spending and mobilization of resources for the war effort have fueled inflation and created labor shortages.
- Dependence on Energy Exports: Russia's ability to finance the war critically depends on energy exports, making it vulnerable to fluctuations in global oil prices.
A rapid shift back to civilian output would indeed shock the system, given the significant resources allocated to the military-industrial complex. Experts warn that any attempt to cut military spending abruptly could lead to;
- Economic Collapse: A sudden decrease in demand for military products could lead to significant economic disruption.
- Unemployment: Demobilization of soldiers and workers in the defense sector could cause unemployment to rise.
The Kremlin plans to maintain its military spending for at least the next three years, with a focus on rearmament and modernization of its defense industry. However, sustaining this level of spending may become increasingly challenging due to;
- Economic Stagnation: Russia's economy is facing stagnation, and declining oil prices could reduce government revenue.
- Increasing Debt: Russia's debt-servicing costs are expected to rise by 23% in 2026, putting pressure on the budget.
- Tax Increases: The government may consider further tax hikes to finance military spending, which could impact economic growth. 🇷🇺