The Russian economy has lost momentum: how the war is changing life in the Russian Federation
The Kremlin prioritizes the Russian defense industry, which significantly affects the living standards of Russians. According to a report from the Institute for the Study of War, the Russian economy is facing difficulties due to Western sanctions, and consumer pressure is also rising. Vladimir Putin met with Denis Manturov on January 12, who noted that industrial growth in the Russian Federation could reach a pace of about 3% by 2025.
In the first nine months of last year, investments in the manufacturing sector increased by 23%, amounting to approximately 5 trillion rubles (about $64 billion). The Russian defense industry employs 3.8 million people, and the number of workers in this sector has increased by 800,000 over the past three years. However, despite these positive indicators, the Russian economy has been recognized by the Kremlin for the first time as having lost momentum and entered a state of 'stagnation.'
Challenges for the economy
The Central Bank of Russia has lowered its key interest rate four times in 2025, aiming to support the economy amid new challenges. However, in November 2025, Putin signed a law raising the value-added tax from 20% to 22%, which may negatively affect consumer demand. Additionally, in January 2025, the cost of most commercial housing in Russia increased by 20% or more, indicating rising housing prices amid economic uncertainty.
Thus, the current situation in the Russian economy highlights the significant impact of military actions and international sanctions on the everyday lives of Russians. In an environment of rising prices and increased taxes, the population may face difficulties in meeting their basic needs, which in turn may lead to social tension. The further development of events in this country will remain a subject of careful observation, as the outcomes of economic reforms and political decisions can significantly affect the stability of the country as a whole.