Russia’s Wartime Economic Boom Ends as Growth Stagnates Amid Rising Taxes
Moscow, Friday, 6 February 2026.
With military spending surpassing 7% of GDP, falling oil prices and labor shortages have halted growth, leading the IMF to downgrade Russia’s 2026 economic outlook to just 0.8%.
The Fiscal Tightrope: Tax Hikes and Slowing Growth
The era of rapid, stimulus-driven expansion appears to be closing as of early 2026, forcing the Kremlin to navigate a precarious economic landscape. In January 2026, the International Monetary Fund (IMF) adjusted its expectations significantly, downgrading Russia’s growth forecast to just 0.6% for 2025 and 0.8% for 2026 [1]. This stagnation is partly the result of deliberate policy decisions intended to cool the economy; in 2023, the central bank raised its key rate to 21% to combat inflation [1], a move that has made corporate borrowing increasingly expensive. By early 2026, Russian officials were reportedly warning of a potential economic crisis by summer, driven by falling revenues and a banking sector where net profits have decreased by 8% to $45 billion [3].
Energy Revenue Collapse
The structural integrity of Russia’s economy is further threatened by a sharp decline in fossil fuel revenues, which have historically underpinned the federal budget. In 2022, fossil fuels accounted for approximately 40% of the budget, but this figure plummeted to roughly 25% during the first three quarters of 2025 [1][2]. This decline is driven by a drastic reduction in the price of Urals crude oil, which fell from $90 per barrel in early 2022 to roughly $50 per barrel by late 2025 [2]. This represents a price drop of -44.444%. Consequently, fossil fuel export earnings in 2025 were 13% below pre-war levels, exacerbated by Ukrainian drone strikes on infrastructure and the loss of European gas markets [1].
Demographic Strain and Geopolitical Reality
Beyond the immediate fiscal challenges, Russia is grappling with a severe, long-term demographic crisis that limits its potential for economic recovery. The population declined from 145.5 million in 2019 to 143.5 million in 2024, creating acute labor shortages [1][2]. This scarcity of workers has driven the unemployment rate down to a historic low of 2% [2], a figure that paradoxically signals an overheated labor market unable to meet demand rather than economic health. Economists note that this demographic reality serves as a hard ceiling on growth, regardless of short-term stimulus measures [1].