Why Russia's Economy May Be Even Worse Off After The War In Ukraine Ends

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• Russia's economic outlook won't brighten if the war in Ukraine ends, according to CEPA.
• The research center thinks Russia has grown too reliant on military spending to keep its economy going without it.
• A huge 2025 defense budget shows how dependent Moscow become on the war.

Pressure has steadily been building on Russia's economy in the three years since it invaded Ukraine in 2022, but things could continue to get worse for Moscow even after the war stops, a think said this week.

According to the Center of European Policy Action, a public policy research group based in Washington, DC, the economic outlook in Russia could darken further once the Ukraine war comes to an end. That's partly because Russia has become "addicted" to military spending to prop up its economy, and partly because Moscow is weighed down by a range of economic issues that could take a while to resolve even after the fighting is over, the center said in a new report.

"Even without any ongoing fighting military spending would need to remain high," Alexander Kolyandr, a senior fellow at CEPA, said.

According to Russia's latest federal budget, the country will spend a record 13.5 trillion rubles on its military in 2025, up from around 10.8 trillion rubles last year. Economists have said that stimulus is largely responsible for Russia's recent economic growth, with GDP rising around 4% last year.

But other indicators of Russia's long-term prospects look weaker.

Russia's labor market is slammed with a severe shortage of workers, thanks partly to the exodus of Russians who fled the country when Russia first began its invasion of Ukraine in 2022. The nation was short around five million workers in 2023, according to estimates from the Russian Academy of Science's Institute of Economics.

"The labor market dislocation will remain unless Russia faces a severe contraction. A combination of the demographic trough, brain drain, and high demand from the defense industry and the army will pressure the market, forcing the Kremlin to choose between importing foreign workers at the risk of social discontent and a constant labor shortage," Kolyandr said.

The flight of Russia's most educated workers has also caused Russia to fall behind in the tech space, another issue that economists have said could impact Moscow's long-term growth.

Patent filings fell 13% in Russia in 2022, while patent filings from foreign applicants dropped 30%, according to data from the Russian Patent Office.

"Russia remains technologically backward and dependent on high-tech imports," Kolyandr added. "The 2025 budget, which sacrifices spending on science, education, and health in favor of defense, illustrates the problem."

Russia is also under continued pressure from Western sanctions, which have restricted the nation's access to financing and crimped revenues from some of its most important exports, like oil and gas.

Russia's total energy revenues plunged by nearly a quarter in 2023. The Kremlin, meanwhile, expects oil and gas revenue to keep shrinking until 2027, according to a draft budget viewed by Bloomberg.

"It would not be accurate to say that the sanctions did not work. While they have failed to prevent Russia's aggression and to change Russia's political course since 2022, they have helped to distort the country's growth, possibly planting the seed for another 1980s Soviet-style crisis," Kolyandr added.