Kluge, Janis
Resea ch Repo
The Russian economy a a u ning poin : As he wa boom
ends, he K emlin aces g owing economic isks
SWP Commen , No. 53/2024
P o ided in Coope a ion wi h:
S i ung Wissenscha und Poli ik (SWP), Ge man Ins i u e o In e na ional and Secu i y A ai s,
Be lin
Sugges ed Ci a ion: Kluge, Janis (2024) : The Russian economy a a u ning poin : As he wa boom
ends, he K emlin aces g owing economic isks, SWP Commen , No. 53/2024, S i ung Wissenscha
und Poli ik (SWP), Be lin,
h ps://doi.o g/10.18449/2024C53
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/315521
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
NO.
53
NOVEMBER 2024
In oduc ion
The Russian Economy a a Tu ning Poin
As he Wa Boom Ends, he K emlin Faces G owing Economic Risks
Janis Kluge
Russia plans o signi ican ly s ep up i s mili a y spending once again in 2025. Bo h
he p oduc ion o weapons and he ec ui men o soldie s a e becoming inc easingly
expensi e. O e he pas wo yea s, s ong go e nmen demand has igge ed a wa
boom in pa s o he Russian economy. Incomes ha e isen and he e is new op imism
abou he economy. Howe e , owing o labou sho ages and he impac o Wes e n
sanc ions, economic g ow h has s alled his yea , while in la ion has emained s ub-
bo nly ele a ed. The Cen al Bank is using e y high in e es a es o igh p ice
inc eases, which is c ea ing mo e headwinds o he economy bu has so a ailed o
slow in la ion. Amid he de e io a ing ou look o he Russian economy in 2025, he
coun y is mo e ulne able o economic c ises. New sanc ions o a d op in oil p ices
could igge a ecession.
On 21 No embe 2024, he Russian S a e
Duma adop ed he ede al budge o nex
yea . Mili a y spending is se o inc ease sig-
ni ican ly: he de ence budge will ise by
one qua e o 13.5 illion ubles, which, a
he cu en exchange a e, is equi alen o
130 billion eu os. Gi en ha Russia is wag-
ing a wa agains Uk aine, his sum migh
seem a he small. Howe e , he pu chasing
powe o mili a y spending in Russia mus
be aken in o accoun . T ansla ed in o Ge -
man p ices, Russia’s de ence budge amoun s
o some 350 billion eu os.
Russia’s o al mili a y spending will be
somewhe e be ween 7 pe cen and 8 pe
cen o g oss domes ic p oduc (GDP), simi-
la o he 2024 le el, which was a eco d
in Russian pos -So ie his o y. In 2021, he
yea be o e Russia’s ull-scale in asion o
Uk aine, mili a y spending was jus 3.6 pe
cen o GDP. How much o Russian budg-
e a y expendi u es do, in ac , go owa ds
he wa is e y di icul o assess. Spending
no di ec ly ela ed o he mili a y, such as
heal hca e and cons uc ion in he illegally
annexed Uk ainian e i o ies, in la es he
o e all bill.
A he s a o he ull-scale in asion in
2022, Russia was able o inance he addi-
ional expendi u es h ough e enues om
he his o ic boom in i s ene gy expo s.
Since 2023, ene gy e enues ha e declined
amid alling p ices on global commodi y
ma ke s and wi h sanc ions cu ing in o
Russian expo e enues. As a esul , Russia
has ecen ly been unning budge de ici s,
bu a a ound 2 pe cen o GDP, hey do
no h ea en economic s abili y. Fiscal sho -
SWP Commen 53
No embe 2024
2
alls o his magni ude can be co e ed by
he Na ional Wel a e Fund and domes ic
bo owing o se e al yea s.
S a ing in 2025, some axes will be hiked
so ha he budge can e u n o s uc u al
balance, despi e inc eased mili a y spend-
ing: high-income ea ne s will ace highe
income axes and co po a ions highe p o i
axes. Re enues will also be aised h ough
much highe ees on impo s o ca s and
lo ies. A he same ime, social expendi-
u es a e declining, no because o cu s in
wel a e bu because he numbe o pension-
e s is alling – he o icial e i emen age
is g adually being aised and Russia su -
e ed a e y high Co id dea h oll, especial-
ly among he elde ly. Howe e , i is doub -
ul whe he Russia’s budge de ici will, in
ac , sh ink acco ding o plan: since 2022,
spending has been signi ican ly highe han
planned each yea .
Wa boom nea s an end
The signi ican inc ease in demand o
weapons and o he goods needed a he
on in Uk aine has igge ed a s ong
economic up u n in many Russian egions.
Indus ial p oduc ion has g own signi i-
can ly compa ed wi h 2021, he expansion
ha ing been almos exclusi ely d i en by
sec o s ha a e ela ed o he mili a y-
indus ial complex. The e a e no o icial
s a is ics on Russian a ms manu ac u e.
Ins ead, he ou pu is added o ca ego ies
such as “O he Me al Goods”, he p oduc-
ion o which has almos ipled since 2021.
The key p oduc ion lines in Russia’s
a ms indus y a e now unning 24 hou s a
day, which explains mos o he inc ease in
he manu ac u e o weapons. Acco ding o
Russian Fi s Depu y P ime Minis e Denis
Man u o , Russia’s a ms indus y added
520,000 new wo ke s in 2023 and was
looking o add ano he 160,000 his yea .
Th oughou 2024, Russian weapons
p oduc ion has inc eased mo e slowly han
du ing he p e ious wo yea s. The main
eason is p obably he lack o specialized
pe sonnel. Also, he cons uc ion o new
ac o ies akes ime and ha p ocess has
been a leas slowed down by Wes e n sanc-
ions, as specialized machine y can no longe
be impo ed so eadily.
Despi e he inc ease in a ms p oduc ion,
Russia con inues o s uggle o make up
o he ma e ial losses i su e s a he on .
Moscow has o ely on impo s om coun-
ies such as I an o No h Ko ea (see SWP
Commen 49/2024). In he case o some
weapons sys ems, he indus y is able o
deli e in la ge quan i ies only because i is
apping in o he s ocks o ehicles ha we e
buil up du ing he So ie e a. Only abou
20 pe cen o new a mou ed ehicles a e
buil om sc a ch. This means ha much
o he cos o Russia’s cu en wa agains
Uk aine oday has, in ac , been me by he
s a e expendi u es o he So ie Union.
Meanwhile, he ec ui men o soldie s
has slowed somewha , oo, acco ding o
o icial igu es, and has become much mo e
expensi e. Acco ding o he Russian De ence
Minis y, 540,000 ec ui s we e added in
2023, while Dmi y Med ede , he depu y
chai man o Russia’s Secu i y Council,
announced ha ano he 190,000 signed up
du ing he pe iod Janua y-July 2024. I is
e y di icul o e i y hese igu es, bu
hey a e gene ally suppo ed by indica o s
such as Russian budge spending on ec ui -
men .
Wi h he excep ion o he pa ial mobili-
za ion campaign in au umn 2022, he Rus-
sian go e nmen has sough o ind Russian
men willing o sign a olun a y con ac
wi h he De ence Minis y. Many a e lu ed
by eno mous cash paymen s, bu in some
cases p essu e and coe cion play a ole (see
SWP Commen 24/2024). So a , he K em-
lin has been able o ind enough ec ui s o
eplace – a leas quan i a i ely – hose
los a he on .
Signing bonuses o mili a y newcome s
ha e inc eased signi ican ly in mos egions
o Russia in 2024, which can be in e p e ed
as a sign o g owing di icul ies in ec ui -
ing. Fo example, ec ui s in Nizhny No go-
od a e paid a egional bonus o 2.6 million
ubles (25,000 eu os o 68,000 eu os i he
highe pu chasing powe in Russia is aken
SWP Commen 53
No embe 2024
3
in o accoun ); his is many imes mo e han
he a e age mon hly sala y o 66,000 ubles.
A he beginning o 2024, he egional
signing bonus o new ec ui s s ood a jus
50,000 ubles, be o e ising o 500,000
ubles in Ma ch and 1 million ubles in Ap il.
O e hea ing economy
The eno mous wa expendi u es ha e led
o a sha p inc ease in agg ega e demand.
Russian Finance Minis e An on Siluano
es ima es ha he iscal impulse o he
pe iod 2022–24 o alled 10 pe cen o
Russia’s annual GDP. The esul has been
high GDP g ow h a es: in 2023, he Russian
economy g ew 3.6 pe cen , la gely owing
o he c ea ion o 2 million new jobs, mos
o which we e in he de ence indus y and
he a my.
Howe e , his g ow h model has eached
i s limi s. Unemploymen is a a his o ical
low o 2.3 pe cen and he e is an acu e
labou sho age. The Russian Cen al Bank
s ill expec s he economy o g ow a ound
3.5–4 pe cen his yea ; bu mos o ha
g ow h will be due o he s a is ical base
e ec (meaning ha las yea ’s dynamics
a e e lec ed, no he cu en si ua ion). In
ac , he Russian economy has ba ely g own
since ea ly 2024. And in Sep embe o his
yea , leading indica o s such as he S&P
Pu chasing Manage s’ Index we e al eady
signalling a con ac ion in Russian manu-
ac u ing – o he i s ime since 2022.
Russia’s labou sho age is exace ba ed
by demog aphic ends. Each yea , he
popula ion in he 20-65 age g oup sh inks
by abou 1 million people. The impac o
his de elopmen on he labou ma ke s
can be only pa ly o se by he g adual
inc ease o he e i emen age. In addi ion,
labou mig a ion o Russia has allen o i s
lowes le el in 10 yea s owing o an inc eas-
ingly hos ile en i onmen , ha assmen and
e en occupa ional bans o mig an s in
Russia, among o he easons.
Fo mos employees in Russia, he labou
sho age has been good news – a leas
ini ially – as i has led o apidly inc eas-
ing wages. In 2024 alone, he a e age wage
g ew by 19 pe cen o e he p e ious yea .
In he Russian mili a y-indus ial complex,
he pay hikes ha e been e en bigge . Fo
example, Russia’s la ges ank manu ac u -
e , U al agonza od, inc eased wages by 12
pe cen in May 2024 and hen again by
28 pe cen in Augus .
The highe wages ha e led o op imism
abou he economy among he Russian
popula ion. Consume spending is on he
ise. Bu p ices a e ising, oo: in Oc obe
2024, seasonally adjus ed co e in la ion was
9.7 pe cen annualized. Wes e n sanc ions
a e pa ly esponsible o in la ion, as hey
make impo s mo e expensi e by compli-
ca ing in e na ional logis ics and paymen s
o Russian businesses. A he same ime,
Russian expo e enues om oil, coal and
o he commodi ies ha e dec eased unde
he sanc ions; as a esul , he uble has
weakened, which means highe impo
p ices.
To b ing in la ion unde con ol, he
Russian Cen al Bank inc emen ally aised
he key in e es a e om 7.5 pe cen in
July 2023 o 21 pe cen in No embe 2024.
Sho - e m in e es a es a e a hei highes
le el in 25 yea s. This c ea es s onge head-
winds o he Russian economy because
companies’ in e es cos s ise and demand
all. The cons uc ion sec o has been pa -
icula ly ha d hi : mo gage a es ha e isen
o mo e han 30 pe cen . A he same ime,
go e nmen subsidies o mo gages we e
cu in he summe .
Despi e he slowing economy, in la ion
has no ye cooled o . The Cen al Bank is
conside ing u he a e hikes. In he mean-
ime, he e is a g owing discussion in Rus-
sia abou a possible s ag la ion scena io
( ha is, high in la ion and economic s ag-
na ion).
A clouded ou look
As a esul o he slowing Russian economy,
he su ge in incomes is likely o e o he
ime being, al hough unemploymen will
no ise signi ican ly as long as he labou
SWP Commen 53
No embe 2024
4
sho age pe sis s. A e h ee yea s o wage
hikes, a e age Russians a e unlikely o
su e much du ing a pe iod o economic
s agna ion, e en i ising ood p ices uel
discon en . High in e es a es a e expec ed
o lead o a wa e o bank up cies. And he
si ua ion will become pa icula ly di icul
o hea ily indeb ed Russian households.
A he same ime, Russia’s iscal balance
is likely o be signi ican ly wo se han
planned. Es ima es o ax e enues in 2025
a e e y op imis ic, as hey a e based on
o ecas s made in he summe , when 2.5 pe
cen g ow h was s ill expec ed – he Cen-
al Bank is now p edic ing jus 0.5–1.5 pe
cen . Fu he mo e, high in e es a es ans-
la e in o highe budge expendi u es, as
he in e es on a la ge pa o he Russian
public deb is paid a a loa ing a e. The
Finance Minis y’s mos likely esponse o
all hese p oblems will be o cu non-mili-
a y expendi u es and delay in es men
spending.
While he economic di icul ies a e likely
o dampen op imism among he popula ion
and o ce he go e nmen o make poli ical
ade-o s, Russia’s abili y o igh he wa
in Uk aine will no be di ec ly a ec ed. Mo e
impo an in his espec is he success o
ec ui men campaigns and he capaci y
o he Russian mili a y-indus ial complex.
The u u e o Russian a ms p oduc ion
hinges on he emaining s ocks o So ie -
e a a mou ed ehicles. Depending on he
weapons sys em, hese s ocks ha e sh unk
conside ably; and in some cases, main ain-
ing p oduc ion olumes could become
mo e di icul as soon as in 2025. To con-
inue igh ing Uk aine a he same le el o
in ensi y, Russia would ha e o signi ican ly
inc ease he capaci y o i s a ms indus y.
The ex en o which he economic slow-
down becomes a p oblem o Russia also
depends on he p ice o oil nex yea . A sus-
ained decline in expo e enues would
lead o a apid de e io a ion in he economic
ou look. The Cen al Bank would be unable
o in e ene e ec i ely because mos o i s
ese es a e ozen unde Wes e n sanc-
ions. The de alua ion o he uble, high
in la ion and ecession would all be ine i-
able.
Mo eo e , he slowing economy makes
Russia mo e ulne able o u he sanc-
ions. As he wo ld oil ma ke is ela i ely
well supplied a p esen , his could be he
ime o igh en sanc ions on Russian oil
expo s. New sanc ions could also a ge
o he key Russian expo s, such as lique ied
na u al gas and e ilize s. Fu he mo e,
Russia’s mili a y-indus ial complex e-
mains highly dependen on Wes e n dual-
use goods and machine y; and Moscow
con inues o pu chase la ge quan i ies o
Wes e n componen s o weapons p oduc-
ion h ough hi d coun ies – abo e all,
China. P essu e on hese coun ies and he
companies in ol ed should be inc eased,
bo h h ough diploma ic channels and
h ough new sanc ions.
D Janis Kluge is Depu y Head o he Eas e n Eu ope and Eu asia Resea ch Di ision a SWP.
This wo k is licensed
unde CC BY 4.0
This Commen e lec s
he au ho ’s iews.
The online e sion o
his publica ion con ains
unc ioning links o o he
SWP ex s and o he ele an
sou ces.
SWP Commen s a e subjec
o in e nal pee e iew, ac -
checking and copy-edi ing.
Fo u he in o ma ion on
ou quali y con ol p o-
cedu es, please isi he SWP
websi e: h ps://www.swp-
be lin.o g/en/abou -swp/
quali y-managemen - o -
swp-publica ions/
SWP
S i ung Wissenscha und
Poli ik
Ge man Ins i u e o
In e na ional and
Secu i y A ai s
Ludwigki chpla z 3–4
10719 Be lin
Telephone +49 30 880 07-0
Fax +49 30 880 07-100
www.swp-be lin.o g
[email p o ec ed]
ISSN (P in ) 1861-1761
ISSN (Online) 2747-5107
DOI: 10.18449/2024C53
(English e sion o
SWP-Ak uell 59/2024)
