As Russia navigates the ongoing turmoil stemming from the Ukraine war, its economy faces a precarious situation that experts warn could lead to collapse. Recent analyses indicate that the economy is likely to experience a significant downturn due to increasing sanctions and ineffective policies, with projections estimating GDP growth to slow to just 1.4% in 2025 [da95c45f]. Inflation has already surged to 9.5% in 2024, driven by rising military expenditures and state subsidies, prompting the Central Bank of Russia to raise interest rates to 21% in October 2024 [6ed0dd53][da95c45f].
Elina Rybakova from the Peterson Institute has described the current state of the Russian economy as an 'illusion of strength,' likening it to 'running on cocaine' due to its unsustainable practices [da95c45f]. This sentiment is echoed by former U.S. President Donald Trump, who stated that the Russian economy is nearing collapse [da95c45f]. The labor market, despite a low unemployment rate of 2.3%, is contributing to inflationary pressures, as businesses struggle with rising costs and theft, leading some supermarkets to lock away essential goods [da95c45f].
In addition to these challenges, the Russian government's budget deficit reached 1.7% of GDP in 2024, and the National Wealth Fund has been significantly depleted, raising concerns about fiscal sustainability [6ed0dd53]. The rouble's decline to its lowest value since March 2022 further complicates the economic landscape, making international transactions more difficult and exacerbating inflation [6ed0dd53]. As the regime's social contract comes under threat, the government's ability to stabilize the economy while addressing these multifaceted challenges will be crucial in the coming year [da95c45f].