Russia’s economy is in much worse shape than it looks, potentially forcing Vladimir Putin to stop waging war on Ukraine as early as next year, according to economist and author Anders Åslund.
In a recent op-ed on Project Syndicate, he cited financial, technological, and demographic headwinds weighing on a Russian economy that’s headed for “near stagnation,” and estimated Western sanctions are reducing GDP by 2%-3% each year.
“Moreover, the situation will get only worse for Putin, perhaps even impeding his campaign of aggression against Ukraine,” Åslund added.
He noted that Ukraine’s spy service claimed last month to have Russian documents that indicate the Kremlin wants to conclude the war as soon as late-2025 amid tightening economic and financial pressure.
“Whether true or not, this scenario would make sense,” Åslund, who wrote Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy, said.
For one thing, Western sanctions have stoked “hidden inflation” in Russia while preventing it from raising funds on global financial markets and instead forcing it to rely on reserves.
Amid the constraints, the Kremlin has limited its annual budget deficit to 2% of GDP, or about $40 billion. But given that liquid reserves in Russia’s national wealth fund had been whittled down to $55 billion as of March, state reserves should run out next year, he said.
Meanwhile, Russia’s technological backwardness has been aggravated by the brain drain of the best and the brightest fleeing the country after the invasion as well as Western sanctions, Soviet-like repression, and Putin’s “kleptocracy,” Åslund added.
Elsewhere in Russia’s economy, weapons exports have collapsed as demand from the country’s own troops prevent sales to foreign countries. Putin’s war machine also has a manpower problem as low unemployment, the mass exodus of Russians, and mounting war casualties limit the ability to raise more troops.
With financial reserves running dry, Russia will have trouble making the budget math work. Åslund estimated that Russia will spend about $190 billion, or 10% of GDP, on the war this year, and the Kremlin is running out places to cut from—other than war expenses—as the invasion nears its three-year anniversary.
“Ukraine could win the war if it had an additional $50 billion per year, as well as a green light to bomb military targets inside Russia,” he said.
Others have also issued dire assessments of Russia’s economy. The Bank of Finland’s institute for emerging economies published a report Thursday that said growth will slow to just 1% in 2025 and 2026 from 3.5% this year.
To maintain the current rate of growth, Russia would have to make major gains in productivity, but that’s highly unlikely because of all the investment going into the military and the war, the report said.
Labor shortages and the inability to buy spare parts or new equipment from the West will also hinder economic growth, it added.
“Given Russia’s myopic policy shifts, conditions in its wartime economy could change suddenly,” the report said.
This story was originally featured on Fortune.com
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