Russia’s economy enters stagflation due to war spending
Russia’s economic model has finally lost stability, entering a state of stagflation—a simultaneous decline in production and uncontrolled price growth.
According to an analytical report by the Ukrainian Foreign Intelligence Service, by the end of 2025 and the beginning of 2026, the aggressor’s strict monetary policy and “high-cost money” regime halted the development of civilian sectors. Currently, only the military-industrial complex has a chance of survival, while GDP dynamics effectively froze in November of last year.
Investment activity in Russia has sharply declined, as businesses refuse to modernize due to resource shortages and high interest rates. During the second and third quarters of 2025, investments in fixed capital decreased, while tax pressure and a growing budget deficit have only worsened the situation. Intelligence predicts that in 2026–2028, the aggressor’s fiscal policy will act as a restraining factor due to further increases in the tax burden and cuts in non-military expenditures.
The most vulnerable segment remains domestic demand, where the business confidence index has fallen to its worst level since 2022. Consumer sentiment among Russians is deteriorating, and foot traffic in shopping centers during the 2026 New Year holidays dropped by 20%. Nearly half of retailers expect declining profits, indicating a deep structural crisis and weak adaptability of the Russian retail sector to new economic realities.
Falling oil and gas revenues forced Russia to revise its state budget three times and increase the deficit fivefold.
The Ukrainian Foreign Intelligence Service also released a report highlighting a deep systemic crisis in Russia’s freight trucking market.
