The frictions in Russia's wartime economy are growing, as massive military spending balloons the budget deficit. Consumers and businesses are gloomier. Growth has slowed.
None of that, however, signals an imminent financial crisis or economic collapse, economists say. With crucial oil export revenues holding up due to high prices from the Iran war, the government is able to find the money to pay for its four-and-a-half-year-old invasion of Ukraine, at least for now.
Meanwhile, low unemployment and government largesse in poor regions help keep a lid on consumer grumbling.
That picture suits the Kremlin's narrative of stability ahead of Russia's stage-managed parliamentary election that got underway Friday and concludes Sunday.
But economists warn that longer-term problems are gnawing at the foundations — and could one day result in a crisis.
Indicators of consumer sentiment have drifted down since a peak in 2024-25, when increased military spending was pumping up growth and wages. More recently, consumers have coped with higher gasoline prices and shortages due to Ukrainian drone attacks that knocked out refineries.
And many small businesses have lost inventory and customers due to strikes against online retailers Wildberries and Ozon.
At the same time, growth has slowed from a peak of over 4 per cent annual expansion in 2023-24. The government foresees 0.6 per cent this year, and the economy shrank in the first quarter before rebounding somewhat in the second.
The consumer sentiment index compiled by the Levada Centre, an independent Russian pollster, fell to 94 over the summer, down from 116 in the spring and summer of 2025. Readings under 100 indicate that consumer sentiment is more negative than positive.
People asked about the election in Moscow responded with mostly basic concerns about pensions and prices.
Alexander Vertukhin, a 72-year-old retired military prosecutor, said the government should be focusing on "a decent standard of living for pensioners.”
As for his own situation, “I'm doing fine, both financially and in every other respect,” he said.
“Overall, I'd like housing to become more affordable; I'd like pensioners to be able to live decently instead of merely surviving,” said Dmitry Kirillin, 26. “I'd also like travel in our country to be more affordable. Those are the main things that first come to mind; if I gave it more thought, I could probably name more."
He added, "I'd like prices to rise more slowly, if that's possible in the current situation."
The gasoline situation and Wildberries strikes have made the war more visible to people but don't constitute a crisis, said Chris Weafer, CEO of the Macro-Advisory Ltd. consultancy active across the former Soviet Union. He described the economy as in a state of “tolerable stability" and the public mood as “grumbling” but not protesting. “The economy is under strain - it's stagnant to the extent that it's stable but not growing,” Weafer said. “But it's not facing recession either.”
Most people “are not that affected” by the Ukrainian strikes, he said. “Just because your shopping habits are disrupted, that's not going to change the public support for the Kremlin.”
President Vladimir Putin's approval rating has declined in recent months but remains higher than it was before the war started in 2022.
One key sign of stress is Russia's budget deficit and the government's efforts to find new sources of money. Putin has resorted to increasing the value-added tax paid by consumers at the cash register, raising a raft of other fees and tightening taxation of small businesses. But the deficit has continued to climb.
By the end of July, budget data showed a deficit of 2.8 per cent of annual economic output — almost twice the original annual budget target. Available resources in Russia's reserve fund have dwindled to 1.6 per cent of GDP, meaning the Kremlin needs to borrow from domestic banks.
That, however, means paying high borrowing costs, with interest rates on Russian bonds as high as 17 per cent, according to Janis Kluge, an expert on Russia's finances at the German Institute for International and Security Affairs.
Budget stress is “adding to doubts about how long Russia can sustain the war," he wrote in a recent report. Russia's central bank has kept rates high to contain the inflation caused by war spending. That stresses civilian companies who don't get the privileged access to credit afforded defence firms.
Another source of war funding has been increased private lending by Russia's compliant banks to defence-related companies, meaning those debts are not showing up in the deficit figures.
Over the long term, Western sanctions deprive Russia of new investment that would make the economy more productive.
And the risk factors — high spending, low growth, rising debt and elevated borrowing costs — lead some economists to warn that while Russia's economy has not collapsed, its structural foundations are eroding dangerously.
The current trajectory is “unsustainable,” according to Torbjorn Becker at the Stockholm School of Economics. Still, “the timing of a crisis remains highly uncertain.”
Oil export earnings, which had fallen below $10 billion per month ahead of the Iran war, rebounded to USD 15.8 billion by June and USD 13.8 billion in July.
Russia's budget constraints “may effectively disappear for as long as elevated energy prices persist,” Becker wrote.
To change that, tougher measures against Russia's sanctions-evading oil tanker fleet must be a priority, he argued.
Kremlin spokesperson Dmitry Peskov said month-to-month deficit figures were volatile and that “this is not a figure that should be cause for concern. Macroeconomic stability is absolutely ensured.”
But the chief economist of Russia's state-owned VEB.RF state development bank, Andrei Klepach, warned in a speech that due to sanctions and economic isolation, “we're falling behind in the technological and economic competition in the world,” and that “we can't win the competition in this war of attrition.”
He was fired.