Russia's economic growth may be too weak to sustain defense and social spending, a top business leader warns

""It seems to me that indeed, this cooling or 'managed soft landing' is not very soft and not very managed," Alexander Shokhin, the head of the Russian Union of Industrialists and Entrepreneurs, told Rossiya 24 TV channel on Tuesday. Shokhin said that at the start of the year, officials assumed Russia needed at least 2% annual growth to cover defense, security, social spending, and investment. But growth is now expected to fall well short of that target."

"He said Russia would be "lucky" to see GDP growth of just over 1% by the end of 2025 and 1.3% in 2026. Russia's central bank has forecasted 1.0% to 2.0% GDP growth for 2025 - sharply lower than Russia's 4.3% GDP growth in 2024. Meanwhile, analysts polled by Interfax news agency expect Russian economic growth to come in at 1.1% this year - down from their August forecast of 1.4%."

"Since its full-scale invasion of Ukraine triggered sweeping Western sanctions, Russia has kept its economy afloat through massive defense spending and revenue from oil and gas exports. That spending has kept factories busy and supported output - but at a cost. Russia's economy has become so militarized that its top central banker warned at the end of 2023 that it risked overheating. To cool demand, the central bank sharply raised interest rates, a move that curbed inflation but further slowed growth."

Russia's economy has decelerated to growth rates below levels needed to finance defense, security, social spending, and investment. Officials initially estimated at least 2% annual GDP growth would be required, but projections now point to roughly 1%–1.3% through 2026. Western sanctions and elevated military outlays have strained output and fiscal capacity. Massive defense spending and oil and gas revenues have propped up production but increased economic militarization. The central bank raised interest rates to cool demand, which reduced inflation but further dampened growth. Moscow is planning tax increases to help fund the Ukraine war effort.

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