Putin says Russia will cut military spending as economy 'on the brink of going into a recession'

Putin said Russia would reduce defense spending “next year and the year after, over the next three-year period,” though he did not name a specific year.

His comments followed last week's statement by Russian Minister of Economic Development Maxim Reshetnikov, who warned that the country is "on the brink of going into a recession" — a significant economic slowdown.

Russia's Central Bank Governor Elvira Nabiullina also cautioned that wartime economic growth, driven by massive defense sector spending, is beginning to fade.

"We grew for two years at a fairly high pace because free resources were activated. We need to understand that many of those resources have truly been exhausted," she said.

The Telegraph notes that Russia's economy grew by 4.3% in 2024. However, to curb inflation, interest rates have been held at 21% since October. This month, the rate was slightly lowered to 20% as inflationary pressure eased somewhat.

Much of the inflation was driven by Western sanctions, which increased the cost of imports.

The country is also facing a labor shortage. Wage growth has surged to a 16-year high due to a shrinking labor force, as workers are increasingly drawn into the defense industry and military.

According to estimates from the Higher School of Economics in Moscow, the labor shortfall reached 2.6 million people by the end of 2024.

In addition, the Kremlin has offered soldiers high salaries and generous bonuses in a push to reinforce frontline units.

While Russia's defense-industrial sector has benefited from increased state spending, the report notes that private industries have suffered. Falling demand, rising costs, and heavy debt burdens — fueled by high interest rates — have hurt private businesses.

According to Bloomberg News, Russian banking officials have privately warned that the country may face a crisis next year as more companies become unable to repay loans.

Bloomberg also says future spending may include reintegration efforts for war “veterans” returning from Ukraine. Nearly 140,000 Russian soldiers have returned to civilian life. Many of them are now unemployed.

Russia's economic decline

Yesterday, Putin said the Kremlin currently spends about 13.5 trillion rubles a year on defense, including the war against Ukraine. That's nearly $172 billion.

In January, Reuters reported that Putin is increasingly concerned about Russia's wartime economic problems. This comes amid US President Donald Trump's calls to end the war in Ukraine and his promises of new sanctions.

We also recently reported that Russia is forced to spend heavily to recruit troops for the war. At the same time, the country is suffering significant losses, and the sanctions are clearly having an impact.

Due to these challenges, Russian officials have reduced "non-military" spending this year. Social programs have been the primary target.