The industrial sector of the Russian Federation entered a phase of structural stagnation in 2025 after a brief upturn caused by a sharp increase in defense spending in 2023–2024.
This is reported by Finway
Low Growth Rates and the Impact of Sanctions
From January to November 2025, the growth in industrial production in Russia was only 0.8% compared to the same period last year. This indicates an almost complete loss of economic momentum, occurring against the backdrop of increasing international sanctions, a high interest rate, and a significant reduction in private investment.
In fact, positive dynamics are provided only by a narrow range of industrial sectors that are closely integrated into fulfilling state defense orders. Other segments of the industry are experiencing a serious decline, deepening the structural imbalances of the Russian economy.
“Such concentration of growth masks a systemic decline in the civilian segments of the economy and deepens structural imbalances,” noted the Ministry of Economic Development.
Imbalance in Budget Expenditures and Degradation of the Civil Sector
The key factor supporting industrial production remains large-scale budget injections. In 2025, Russia’s defense budget expenditures exceeded $172 billion, while only about $56.1 billion was directed towards economic development. Moreover, a significant portion of these funds (50–70%) is actually allocated to the needs of the defense-industrial complex, further increasing the industry’s dependence on state resources and narrowing the opportunities for market competition.
Most manufacturing enterprises not involved in defense contracts have found themselves in a phase of decline. A noticeable reduction in production is observed in metallurgy, the chemical industry, machine engineering, and the food sector. Particularly significant has been the collapse in the production of civilian machinery: from tractors and bulldozers to passenger cars, elevators, and vehicles. Such trends indicate a serious contraction in domestic investment demand.
The model of economic development in Russia, based on a sharp increase in defense spending, is unsustainable. The maintenance of a high interest rate, combined with sanction pressure, hinders the attraction of private investments and the implementation of technological innovations. Under these circumstances, even government growth forecasts for 2026 appear declarative rather than reflective of the real state of the economy.