Russia’s War Economy: A House of Cards Built on Borrowed Time

As the war in Ukraine enters its fifth year, Vladimir Putin’s regime has managed to defy expectations by delivering a respectable growth rate. However, beneath this façade lies a more disturbing picture. The economy is struggling to sustain itself, with rising bankruptcies and financial strain.

Recent figures show that despite Western sanctions, Russia’s economy grew by 4.9% in 2024, with unemployment plummeting to record lows. But this impressive headline figure conceals the reality of an economy built on shaky ground. Many Russians are declaring bankruptcy than ever before, while banks are becoming increasingly cautious about lending.

The government has lowered lending standards to keep the economy and war machine running, as noted by Anupam Manur, a professor of economics at the Takshashila Institution. This means banks have been forced to take on riskier borrowers – a factor now showing up as financial strain and rising bankruptcies.

The World Bank has downgraded its growth projections for Russia, citing weaker fiscal stimulus, high interest rates, and structural constraints that slowed growth after 2024 government spending began to moderate. The IMF projects a meager 1.0% growth rate in 2025 and 1.1% in 2026-27 – a far cry from the wartime boom.

As the burden of sustaining the war economy shifts onto households and the financial system, ordinary Russians are beginning to feel the pinch. Rising borrowing costs and stagnant wages have created a perfect storm of economic hardship. Meanwhile, the country’s largest lenders warn of deteriorating loan quality – a clear sign that the bubble is about to burst.

The European intelligence report paints an even bleaker picture. It warns that banks are increasingly exposed after years of subsidised lending to defence companies, regional projects, and mortgage borrowers. The report estimates around 10% of corporate loans could already be doubtful, while some major banks reported retail non-performing loan ratios of up to 15% in 2025.

The Bank of Russia remains optimistic about the situation, dismissing claims of an impending banking crisis. However, Deputy Governor Filipp Gabunia’s assertion that capital buffers are at their highest in three years and corporate bad loans remain stable may be misplaced. While there is no clear evidence of an imminent collapse, rising credit risks are apparent – particularly if growth continues to weaken.

As the war grinds on, Russia’s economy teeters on the brink of disaster. The house of cards built on borrowed time will eventually come crashing down – and when it does, the consequences for Russia’s people will be dire. It is a stark reminder that even the most powerful regimes are not immune to economic reality.

The regime’s refusal to acknowledge these problems – and its continued insistence on maintaining a war machine at any cost – will ultimately lead to catastrophe. As the dust settles on this unfolding disaster, one thing is clear: Putin’s regime has built an economy on shaky ground, and it won’t be able to sustain itself for much longer.