The past few months have seen a number of Russia watchers echo each other’s proclamations that the Russian economy is either already collapsing or close to crumbling. 

Will these predictions materialize?

Gloom and Doom: The Russian Economy as Seen From the West 

Mark Temnycky of the Atlantic Council contributed a Jan. 8, 2025 commentary to this U.S. think-tank, in which he asks “Is 2025 the year that Russia’s economy finally freezes up under sanctions?” and answers in the affirmative. Olga Chyzh of the University of Toronto also took a dim view of the Russian economy in her recent commentary for The Guardian, entitled “A string of assassinations, a faltering economy, a shortage of workers: the pressure on Putin is ratcheting up.” In this Dec. 19. 2024, commentary, Chyzh writes that Russia’s “economy is faltering under the combined strain of the war and Western sanctions.” “War-driven salary increases … have triggered a vicious cycle of inflation and subsequent interest-rate hikes. The country also has a chronic shortage of workers, thanks to its ageing population and the exodus of some 700,000 working-age individuals at the start of the war,” she writes.

More recently, FT commentator Martin Sandbu proclaimed in his Jan. 12, 2025, column that, due to ballooning corporate debt, "Russia’s war economy is a house of cards,” while Alexander Motyl of Rutgers University-Newark sees that house of cards crumbling in 2025. Writing in The Hill in October 2024, he predicts that a “Russian economic meltdown is coming next year.” “Leonid Brezhnev’s Soviet Union should have taught Putin a lesson,” warns Motyl, who has repeatedly predicted Russia’s collapse. “The decrepit Soviet economy couldn’t support Brezhnev’s military expenditure. If Russia’s economy collapses, so too will the military and the war,” Motyl predicts.

Motyl is not the only Russia watcher who believes it is not just the Russian economy that is in deep trouble. The entire regime is crumbling, in the view of Roger Boyes of the Times of London. His Jan. 3, 2025, column, entitled "Putin's empire is crumbling: will 2025 prove to be his 1989?,” states that “the shift to a war economy has aggravated labor shortages and inflation, bankruptcies are on the increase.” “The pressing issue is: who is next on the redundancy list after Assad, and how quickly will Putin's protective layers be peeled away?” Boyes asks in his column. 

Post-Soviet Eurasia watchers based in Ukraine see the Russian economy, perhaps predictably, in an even bleaker state than their Western counterparts. Kyiv-based journalists Yelyzaveta Yefimenko, Mariana Lastovyria and Myroslava Tanska-Vikulova published a post on Dec. 5, 2024, entitled “The collapse of the Russian economy,” on American journalist Tim Mak’s Substack, “Counteroffensive.” The Kyiv-based Euromaidan Press outlet then published a commentary by Yurii Bohdanov on Jan. 17, 2025, in which he claims that “even ‘freezing’ the war in Ukraine will not solve Russia’s economic problems… and a freeze only delays the inevitable collapse.” 

Russia Doesn’t Have a Clean Bill of Health

Some of the aforementioned criticism of what the IMF ranks as the world’s 4^th largest economy in terms of PPP is valid. For instance, Olga Chyzh and Roger Boyes are correct in pointing to malaises such as the shortage of workers and high inflation. As of late 2024, Russia was estimated to lack 2.7 million workers,¹ with inflation reaching 9.5% and the Central Bank’s key interest rate was at a record-high 21%. Boyes is also right in pointing out that “bankruptcies are on the increase,” if only as the Russian Central Bank’s lending rates made survival so much harder for many businesses in the country. In fact, the number of corporate bankruptcies in Russia increased by 26% in the first three quarters of 2024 compared to the same period of 2023, totaling 6,392, according to Interfax. With more than 20% of manufacturing companies paying interest costs exceeding two-thirds of their pre-tax profits at the end of 2024, compared to just 10% a year earlier, Russia should brace for a further “large-scale jump in corporate bankruptcies,” according to a report prepared by Russia’s pro-government Center For Macroeconomic Analysis and Short-Term Forecasting, which used to be headed by Russia’s current defense minister, Andrei Belousov.² Increases in corporate bankruptcies cannot help impacting tax revenue flow to the Russian budget, which suffered from a budget deficit of more than 3 trillion rubles ($34.4 billion, 1.7% of GDP) for the third year running in 2024, according to the Russian Finance Ministry’s data cited by Reuters.

But It’s Not All Bad?

It would be wrong, however, to think that the only kind of recent economic news coming out of Russia is bad news (for Putin and the country he runs). For one, the IMF and World Bank estimate that the Russian economy grew by 3.8% and 3.4%, respectively, in 2024.³ Looking ahead, both expect the Russian economy to continue growing in 2025–2026, even though this growth is expected to slow down. The IMF’s latest World Economic Outlook foresees Russia’s economic growth slowing down to 1.4% in 2025 and 1.2% in 2026, but it is still expected to grow. According to the World Bank’s forecast, Russia's GDP will grow by 1.6% in 2025 and by 1.1% in 2026, the bank said, according to Interfax.  

This growth, coupled with the aforementioned labor shortages, could partially explain a recent increase in real incomes (more than 8.5% in 2024), which, in its turn, can make common Russians less likely to revolt against Putin’s rule, even though income inequality has recently increased in the country.⁴ The Russian leader could also count on at least some of the countries’ business elites’ loyalty, as Russia’s rich got richer and more numerous in 2024, despite sanctions. The total wealth of the richest Russian businessmen has grown by $31 billion since the beginning of 2024, to $360 billion, according to the Bloomberg Billionaires Index rating. The same year saw 19 new Russian dollar billionaires join Forbes’s ranking, which is the highest number of new dollar billionaires Russia has produced since 2011, according to Re: Russia.

As the economy grew in 2024, so did Russia’s budget revenues, even though this growth was not sufficient to eliminate the aforementioned budget deficit. In fact, Russia’s budget revenues in December 2024 reached more than 4 trillion rubles ($40 billion), up by 28% compared to December 2023, the highest level recorded in ministry data beginning from January 2011, according to Bloomberg.⁵ One sector of the Russian economy which provides much of the money⁶ that is accumulated in the Russian budget and that the Kremlin then spends on its war, is the energy sector. Judging by the revenues it generated in 2024, it has just had a relatively good year. Russia's oil and gas revenues jumped by 26% last year to $108 billion even as daily oil and gas condensate production declined in 2024 by 2.8%, according to Russian government officials cited by Reuters. Despite remaining the world’s most-sanctioned country in 2024, Russia exported a record 33.6 million tons of liquefied natural gas (LNG) that year, which is a 4% increase from the previous year, according to Meduza.⁷ (Not all is rosy, however, when it comes to Russia’s energy sector. Gazprom, the national gas champion, is estimated to have lost more than $3 billion in the first nine months of 2024, for instance.)

Conclusion 

No economy is completely healthy, and Russia’s is, by far, no exception, particularly given Western sanctions and its rampant spending on the military-industrial complex and the war against Ukraine. Still, one has to wonder: can an economy that has been growing (or stagnating, depending on how you define stagnation)⁸ in the past two years and which is expected by the World Bank and IMF to continue growing for another two years (albeit more slowly), be described as collapsing like a house of cards? We are not economists, but we can advise readers to consult those who are: Adam Tooze, scholar of economic history at Columbia University, has recently observed regarding the state of the Russian economy: “Faced with the prospects of negotiations, it may suit Western pundits to conjure up the specter of financial collapse in Russia. But, if we actually want to get a realistic assessment of Russia’s long-run power potential, images like a ‘House of Cards’ are an indulgence.” Writing for The Bell, Russian economy experts Alexander Kolyandr and Alexandra Prokopenko also disputed what they described as “claims of an imminent catastrophe” for the Russian economy. “In our view, all things being equal, it’s unlikely that the economy will implode soon,” they write. They have a point.

Footnotes:

1. Some 73% of Russian enterprises report labor shortages, according to the Russian parliament.
2. In fact, corporate debt in Russia has already increased by at least 60%, and the share of firms whose counterparties have defaulted on payments has almost doubled from pre-2022 levels to 37%, according to an article in Foreign Affairs by Andrew Kosenko and Peter Liberman. 
3. The Russian government estimated Russia’s GDP growth to total 4% last year. OECD estimates that Russia’s GDP grew by 3.9% and expects the Russian economy to expand by 1.1% in 2025 and 0.9% in 2026.
4. Claims of rising real incomes contrast, however, with the results of Levada’s January 2025 poll, which found some 38% of Russians convinced that the living standards of the majority of Russia's population worsened in 2024, while another 30% said the opportunity to earn a decent income worsened in Russia in 2024. 
5. At the same time, Russia’s National Wealth Fund fell from $117 billion in 2021 to $31 billion in November 2024.
6. Over the past decade, the contribution of oil and gas revenues to Russia's federal budget has fluctuated between 30% and 50%, according to Oxford Energy. 
7. The past year saw German national energy company Sefe alone buy 58 cargoes of Russian LNG—more than six times the figure in 2023, according to FT. 
8. Lloyds, for instance, proclaims that “economic stagnation is defined as an economy with persistently low economic growth—typically lower than 2%.” “A rate of growth of less than 2-3% annually as measured by gross domestic product (GDP) is considered stagnation,” according to Investopedia. Less recently, a 1991 World Bank paper defined a country’s economy as stagnating if its growth was below 0.1%.

RM staff would like to thank RM student associate Chris Conway for research support. (AP Photo/Alexander Zemlianichenko)