Key Points and Summary – More than three years of war in Ukraine have pushed Russia’s economy into an accelerating decline, with some analysts seeing a “near-collapse in the making.”
-GDP growth has slowed to an anemic rate, while domestic demand and exports have plummeted.
-The core of the problem is a faltering industrial base, crippled by two main factors: a catastrophic labor shortage caused by war casualties and a mass exodus of draft-age men, and a severe lack of modern technology due to Western sanctions.
Even Russia’s high-priority defense industry is facing a shortage of hundreds of thousands of workers.
A ‘Near-Collapse in the Making’: The Accelerating Decline of the Russian Economy
WARSAW, POLAND – More than three years of a full-scale war in Ukraine has had a profound and definite negative impact on the Russian economy.
According to Russia’s own economic data, GDP growth is expected to end at an anemic 1.8 percent in 2025, representing a significant decline from 4.1 percent in 2024.
In May, Poland’s Institute for International Relations (PISM), which belongs to the Foreign Affairs Ministry, analyzed the accelerating decline of Russia’s economy and pointed out the factors responsible for what looks increasingly like a near-collapse in the making.
One issue is a slowdown in Russian domestic demand, which includes household spending. Overall spending on goods and services increased by just 2.3 percent in 2025, compared to 5.5 percent in 2024. State expenditures also rose by 0.6 percent in 2025, compared to 4.5 percent the previous year.
Another trend adversely affecting GDP is the low growth rate of exports, which are estimated to rise at an average annual rate of only 1.8 percent from this year through 2027. Again, this compares pathetically with the export figures before the war, which saw increases of 45.7 percent in 2021 and 19.9 percent in 2022. The difference in those two years alone illustrates just how devastating an impact the war has had on the Russian economy.
A Faltering Industrial Base
In parallel with these numbers is the additional negative impact of Russia’s labour shortage. Unemployment in 2024 was down to 2.5 percent, compared to 5.4 percent in 2021, the year before the war.
A drop in a nation’s unemployment is usually a result of sound economic policies that have created growth in critical sectors and payoffs from sound investments in new technologies and production facilities. However, in the case of Russia, the reason for such low unemployment is an increasing labor shortage, which has many businesses stating that they cannot find enough qualified personnel.
One of the reasons for this is a consequence of war losses on one hand and large numbers of male citizens fleeing Russia for fear of being mobilized and sent to the front on the other. Estimates suggest that at least 650,000 people have left Russia for this reason, primarily from the age brackets that are the most capable and productive potential workers.
In December 2024, Deputy Prime Minister Alexander Novak estimated that there was a shortage of 1.5 million skilled workers in the labour market, the most pronounced shortages in transport, construction, and the municipal sectors.
Defense is Suffering As Well
Even the defense industry, which is a high priority during times of war, is facing its own severe problems.
By the end of 2024, the Russian government estimated a shortage of 400,000 workers across the many defense enterprises.
Official estimates project labor shortages only to worsen, and that by 2030, Russia could be lacking at least 2.4 million workers across all industries. The considerable losses in personnel on the battlefields will almost assuredly exacerbate these numbers. That is compounded by a base loss in the size of the population since 2017, which, as of last year, was on the order of 65,000 per year.
“By 2030, we will need to integrate 10.9 million people into the economy. About 800,000 new jobs will be created, and about 10.1 million people will have reached retirement age,” said Anton Kotiakov, the Russian Labor Minister. He made the statement on Monday, July 14, in the course of a meeting with President Putin dedicated to discussing means to confront mounting demographic disparities.
Beyond the labor shortages, another issue is a decline in industrial production, which grew only 1.1 percent year-on-year in Q1 of this year. Again, comparisons with previous years are stark and not encouraging, with Q1 2024 industrial production growth being more than five times greater at 5.6 percent.
That decline is a function not only of a lack of sufficient people, but also a shortage of modern technology. This shortfall is especially pronounced in major strategic industries, such as defense and mining.
This shortage has adverse effects not just in the major manufacturing industries. Without the investment in industrial technologies, Russia will progressively face greater difficulties in processing oil and maintaining current output levels in the industry, which is the lifeblood of the economy.
The PISM assessment concludes “the war has also exacerbated the structural problems of the Russian economy, stemming from years of dependence on hydrocarbon sales for state revenues, lack of reform, delays in state investment programmes, corruption, and the oligarchic system.”
Russia returning to “business as usual” once the war is over is an impossible dream. The strains of the conflict have crushed an already half-broken system. And the old adage of “all the King’s horses and all the King’s men” applies to any ideas about repairing and restoring Russian economic vitality and moving forward. The future looks bleak indeed.
About the Author: Reuben F. Johnson
Reuben F. Johnson has thirty-six years of experience analyzing and reporting on foreign weapons systems, defense technologies, and international arms export policy. Johnson is the Director of Research at the Casimir Pulaski Foundation. He is also a survivor of the Russian invasion of Ukraine in February 2022. He worked for years in the American defense industry as a foreign technology analyst and later as a consultant for the U.S. Department of Defense, the Departments of the Navy and Air Force, and the governments of the United Kingdom and Australia. In 2022-2023, he won two awards in a row for his defense reporting. He holds a bachelor’s degree from DePauw University and a master’s degree from Miami University in Ohio, specializing in Soviet and Russian studies. He lives in Warsaw.
More Military
The U.S. Navy Is Getting Drone Aircraft Carriers (Sort Of)
J-36: China’s Diamond Stealth Fighter Is a Total Mystery
China’s J-20S Is Double Trouble For a Reason
