A new PeaceRep report by LSE IDEAS finds that Russia’s economy has likely contracted since 2022, with hidden inflation, shrinking revenues, sanctions, and rising inequality putting it under significant strain.
These pressures undermine the notion that Russia is operating from a position of strength and somehow able to overcome the realities of its economic position.
Read the new report: Against the Clock: Why Russia’s War Economy is Running Out of Time
Analysis Finds Russia Likely in Recession Amid Ongoing War Costs
A new PeaceRep report from LSE IDEAS at the London School of Economics and Political Science concludes that Russia is probably in recession, with its economy now around 1.5% smaller than it was in February 2022.
The paper was produced in partnership with Ukrainian Industry Expertise and provides an in-depth assessment of the current state of the Russian economy. The report is currently a preprint and has not yet been formally published.
As talks aimed at ending the war continue, the report challenges the prevailing view that Russia is in a stronger position, finding that Russia lacks non-inflationary options for financing its government deficit and is dealing with intense inflationary pressures. The authors also question previously reported inflation figures, estimating that the true rate is approximately double the official numbers over the course of the full-scale invasion – which would significantly reduce reported GDP growth.
Russia has run down its sovereign wealth fund reserves to support the war effort, and newly imposed oil sanctions are substantially affecting its capacity to earn external revenue. The conflict has also greatly widened inequality, significantly raising incomes for 20% of the population while leaving the majority worse off.
The report’s authors argue that Russia should not be regarded as a “metaphysical entity” uniquely capable of defying the economic constraints it faces.
Dr Volodymyr Vlasiuk, Director of Ukrainian Industry Expertise and one of the report’s authors, says:
It is highly likely that the Russian economy is smaller today than it was in February 2022. Our research shows why the official rate of inflation looks suspect. Our alternative estimate of inflation means that Russian GDP should be downgraded, exposing the significant costs that the war has imposed on the Russian economy and the limits of its use of military Keynesianism.
Dr Luke Cooper, report author and Associate Professorial Research Fellow in International Relations and Director of PeaceRep’s Ukraine Programme, says:
Sanctions are having a cumulative and escalating impact on Russia’s ability to finance the war. Russia is in effect having to choose between the wellbeing of the large majority of its population that are seeing no benefit from fighting this war of aggression and the regime’s imperialist ambitions in Ukraine.
The Kremlin now appears to be walking back some of its goals, like insisting on a Ukrainian withdrawal from Kherson and Zaporizhzhia oblasts, despite its momentum on the battlefield. This may be revealing of these economic challenges. It might be a sign that the regime is cognisant of the costs and risks of the war and believes that its ties to the Trump administration can ensure any deal is structured to favour its interests.
Read the new report: Against the Clock: Why Russia’s War Economy is Running Out of Time