Could Excessive WAR SPENDING Backfire?

Russia’s Economy Minister, Maxim Reshetnikov, warned this week that the nation is “on the verge of going into a recession,” signaling deep economic strain even as President Putin downplayed the threat.

At a Glance

• At the St. Petersburg International Economic Forum, Reshetnikov said economic indicators and sentiment point to Russia being “on the verge of sliding into a recession”
• He clarified: “I didn’t predict a recession. I said we’re on the brink. From here on … everything will depend on our decisions,” especially on policy choices
• Russia’s GDP grew just 1.4% year-on-year in Q1 2025, the weakest in two years, despite defense-driven spending
• Inflation remains stubbornly high—close to 10%, far above the 4% central bank target—justifying the current 20% interest rate, which is now viewed as a drag on investment
• Defense spending has fueled short-term growth, but economists warn it’s unsustainable, with civilian sectors stagnating and foreign investment scarce

Cooling Economy and High Stakes

Reshetnikov warned that the central bank must “show the economy some love”—lowering interest rates to stimulate activity—but doing so risks reigniting inflation. This balancing act between inflation control and avoiding a hard economic landing places Russia in uncharted territory.

Putin emphasized that recession “mustn’t be allowed,” citing 1.5% growth in the first four months and declining inflation as signs of resilience. However, analysts point out that growth is largely driven by military expenditures, leaving the broader economy vulnerable to policy shifts and geopolitical instability.

Watch a report: Russia’s economy faces cooling as rate dilemma grows.

What Comes Next?

The central bank is considering whether to pivot towards further rate cuts—potentially lowering them below 20%—to avoid slipping into an outright recession. Meanwhile, there’s speculation about whether Russia can shift from a defense-led growth model to one that is economically productive in civilian sectors, thereby attracting foreign investment despite ongoing sanctions.

Additionally, concerns are rising regarding whether high inflation and continued war spending will dampen consumer demand and weaken the vitality of the private sector.

Reshetnikov’s warning, as covered by AP, marks a turning point: the government must decide whether to prioritize short-term economic support or risk deeper downturn. As military spending becomes unsustainable, the next policy moves could determine whether Russia treads a soft landing—or slips into recession.