The economy of the Russian Federation, which had long demonstrated resilience against international sanctions, is now facing significant challenges in civilian sectors. The military sector is receiving priority in resources and state funding, negatively impacting other areas of the country’s economy.
This is reported by Finway
Resource Concentration on War Deepens the Crisis
In recent years, the Russian Federation has almost entirely directed its financial and production capacities towards meeting military needs. This has led to a substantial reduction in production in civilian sectors, particularly in industry, retail, and the automotive sector. A striking example is the 30% drop in car sales in June. At the same time, the Central Bank of Russia, fearing further decline, lowered the key interest rate by another 2 percentage points, choosing between high inflation and recession.
“Cracks in the $2 trillion economy are now quite evident,” the publication states.
Problems in Key Industries and Threats to Financial Stability
Analysts note that the consequences of war, Western sanctions, labor shortages, falling oil prices, and a strengthening ruble, as well as high credit rates, are causing a decline in various sectors. The risk of a collapse in the civilian economy is increasing as the authorities focus exclusively on military objectives. Even traditionally strong industries, such as coal and metallurgy, are experiencing a crisis due to the loss of markets, difficulties in equipment supply, and limited access to Western financing.
The situation in the financial sector is also causing serious concern. In July, leaders of major Russian banks discussed the need for state support in case of further increases in non-performing loans. Existing documents and insider assessments indicate that the actual quality of loan portfolios is significantly worse than reflected in official statistics.
Currently, only a narrow range of sectors related to government contracts and defense are showing growth. As noted by T-Investments Chief Economist Sofia Donets, most civilian sectors of the Russian economy will be reducing production in 2025.
To replenish the military budget, the Russian government is resorting to mass confiscations of private assets. Over the past year, the value of confiscated property has tripled. The Russian business community expresses concern over a new wave of nationalizations, but the authorities are ignoring these signals.
According to economic experts, the President of Russia is disregarding the decline in coal production, the drop in retail sales, and other negative trends in civilian sectors, as he is entirely focused on achieving military objectives and his own role in the country’s history.