Under strain Is Trump right about the Russian economy?

Russia’s economy is in deep peril, Donald Trump assured the world this week in a dramatic change of tune on the war in Ukraine. The US president even claimed Kyiv now had a chance to win back all its territory.

- Pjotr Sauer

The reality, economists say, is more complicated. While Moscow is enduring its toughest period since the chaotic first days of the invasion, few analysts believe its economy is on the brink of collapse. Fewer still expect Vladimir Putin, Russia's president, to adjust his war plans in the short term.

"For the first time since the invasion, the government is confronting a genuine trade-off: whether to build a tank or invest in the civilian economy," said Maria Shagina, a Berlin-based senior fellow at the International Institute for Strategic Studies thinktank.

"For the Kremlin, the choice will always be military spending. But a widening deficit, soaring defence outlays and shrinking revenues are making that choice harder."

By every metric, the economy is under strain. The finance ministry projects GDP growth in 2024-25 at less than 1%, compared with earlier forecasts of 2.3-2.5%.

German Gref, the chief executive of the state-owned banking and financial services company Sberbank, conceded this month that Russia had slipped into "technical stagnation". To bolster state coffers, Moscow announced this week it would increase VAT from 20% to 22%, reversing one of Putin's earlier promises.