The Russian Economy in December 2025

Russia enters the final weeks of 2025 in a condition of tenuous stability, held aloft by state expenditure upon war, sustained by high energy revenues in certain months, yet burdened by the structural fragilities that prolonged isolation from western markets invariably brings. She has avoided collapse; but she has not achieved prosperity. Instead she has created a war economy arrangement that serves the Kremlin’s immediate strategic priorities at the expense of long-term development, innovation and the welfare of her population.

The appearance of economic endurance derives from the country’s abundant natural resources, the Kremlin’s capacity for coercive planning, and the political decision to privilege output in defence industries above all else. Nevertheless beneath the surface of official figures, which suggest modest growth for the calendar year, lie deeper patterns of distortion, inflationary pressure, demographic decline and technological stagnation. These forces, taken together, indicate that Russia’s current economic model is unsustainable without continued wartime mobilisation and external conditions that are unlikely to remain favourable.

A War Economy Disguised as Growth

Russian authorities report that gross domestic product has expanded slightly in 2025, although at a markedly slower pace than the artificially high wartime surge of 2023 and 2024. This deceleration is unsurprising. Wartime production provides a one-off stimulus: it can expand output as factories are retooled, conscripts are fed and equipped, and foreign trade is rearranged under duress. Once that reconversion is complete, however, the economy loses momentum. Russia reached that plateau in early 2025.

Today’s modest growth stems almost entirely from defence contracts, replenishment of munitions, the expansion of vehicle and drone production, and related industrial activity. Civilian sectors have fared worse. Consumer demand has weakened under the weight of high borrowing costs, rising food prices and declining household incomes when measured in real terms. Retail, hospitality, private services and small manufacturing all show signs of fatigue. The Kremlin’s priority has been to maintain military output; the rest of the economy subsists in the shadow of these choices.

The Burden of Inflation and High Interest Rates

Inflation remains elevated by Russian standards. While headline figures claim improvement from the volatility of preceding years, prices for food, fuel and imported goods continue to rise at a rate that erodes the living standards of ordinary families. Much of this inflation reflects the cost of evading sanctions. Imported components must pass through longer supply chains, often via intermediaries in the Caucasus, Central Asia or East Asia, where risk premiums are embedded into prices.

In response the Central Bank of Russia has maintained a tight monetary stance. Interest rates remain high, which restrains inflation at the expense of consumer credit and investment. The military-industrial sector is exempt from these pressures, because it is funded directly from the state budget. Yet for civilian borrowers and entrepreneurs, the cost of credit is prohibitive. The result is a bifurcated economy: one half artificial and state-driven, the other half suppressed.

Sanctions, the Shadow Trade System and Technological Decline

Western sanctions, now entering their fourth winter, are no longer a temporary inconvenience but a permanent structural feature of Russia’s economic landscape. The Kremlin has constructed an elaborate circumvention apparatus involving parallel imports, covert financial intermediaries and an expanding range of partners in Asia and the Middle East willing to transact at a premium. This keeps certain industries functioning, but it comes with high costs and leaves Russia technologically stranded.

The absence of lawful access to western machinery, microelectronics, software and maintenance networks is gradually hollowing out Russian industrial capacity. Factories rely increasingly upon outdated designs or illicit imports of inferior replacements. Even in the energy sector, where Russia remains a formidable producer, technological regression is discernible. The lack of western drilling equipment, sensors and specialised software impairs maintenance cycles and will, over time, reduce extraction efficiency. These constraints do not cause sudden collapse; they cause slow, cumulative decay.

The Fiscal Weight of War

Russia’s budget for 2025 reveals the country’s priorities with stark clarity. Defence spending occupies a historically unprecedented share. Social expenditure and regional transfers have been maintained in nominal terms to avert domestic hardship or unrest, but inflation has eroded their real value. Infrastructure programmes unrelated to military logistics have been delayed or scaled back.

The Kremlin has funded this spending through a combination of hydrocarbon revenues, increased taxation, withdrawals from sovereign reserves and domestic borrowing. Hydrocarbon income has fluctuated with the geopolitically sensitive oil market, but Russia has managed to maintain export volumes, albeit at the cost of deepening dependence upon a small number of buyers. The longer this dependence persists, the weaker Russia’s fiscal autonomy will become.

Demography, Labour and the Erosion of Human Capital

No account of Russia’s economic condition can overlook her demographic trajectory. The war has accelerated trends that were already negative. Emigration of skilled workers, wartime casualties amongst young men and chronically low birth-rates have combined to constrict the labour force. Shortages are acute in construction, transport, agriculture and certain specialised industries.

To mitigate these deficits, the state has recruited labour from Central Asia, increased coercive measures to retain workers in defence plants, and relaxed certain immigration rules. These measures alleviate immediate bottlenecks but do not resolve the fundamental problem: Russia is losing human capital at a rate incompatible with sustained growth. Her economy may be kept functioning through administrative measures, yet it cannot expand dynamically without people to staff it.

A Country Living Off Wartime Momentum

December 2025 reveals a Russian economy that is not in collapse, but which survives through a brittle combination of high military spending, costly trade deflections and the inertia of resource wealth. The deeper structural weaknesses remain unaddressed. Russia has neither restored normal relations with global markets nor succeeded in building a self-sustaining alternative. She depends upon shadow commerce, state coercion and the continuing ability to siphon resources from the civilian sector into wartime production.

This model is sustainable only for as long as war continues to legitimise exceptional economic measures, and for as long as energy revenues hold steady. Should either condition change, Russia would face difficult adjustments that her current institutions are ill-prepared to implement.

In this sense, Russia ends 2025 not at a moment of strength, but at a moment of suspension. She possesses neither the diversity nor the dynamism to prosper, yet she has not exhausted the tools of state control, resource extraction and wartime mobilisation that allow her to endure. It is an economy that has traded the prospects of tomorrow for the imperatives of today, wagering that stability in the present is worth the erosion of the future.