Russia's economic growth faced a major slowdown last year, dropping to just 1%. Current projections for this year estimate growth to remain low, ranging between 0.2% and 1.1%. A report by the Bank of Finland’s research institute highlights that key factors such as a labor shortage and soaring inflation are severely hindering economic growth in Russia, complicating the country's financial situation amidst ongoing military engagement.

Defense expenditures in Russia have surged, doubling since the beginning of the Ukraine war and now accounting for more than 7% of the nation's GDP. Vladislav Inozemtsev, a Russian economist, predicts that President Vladimir Putin is likely to continue tightening taxation and nationalizing businesses as part of efforts to sustain the war economy. Importantly, the last assessment of GDP growth also indicated that while the economy faced a stark downturn last year, production sectors related to military efforts continued to drive the economy, although overall production capacity remains constrained due to labor shortages.

The economic repercussions of these military priorities are significant, as the rising inflation and limited workforce contribute to a precarious situation for Russia. The sharp decline in economic growth and high inflationary pressures could have downstream effects on the populace, potentially leading to civil unrest or economic instability if not addressed. This situation highlights the interconnectedness of military spending and economic health, further emphasizing the challenges faced by Russia in maintaining its war economy under growing international sanctions and internal pressures.