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Putin’s economic strategies for 2025 suggest that he is preparing Russia for an extended confrontation with Ukraine. This could have a negative impact on the economy.
MOSCOW – Vladimir Putin, the president of Russia, appears to be preparing for a protracted war with Ukraine. This can be deduced from the budget plans for 2025, which foresee a record increase in military spending. The recently presented draft budget plans defense spending of almost 13.5 trillion rubles. This represents an increase of about three trillion rubles compared to defense spending planned for 2024.
Impact on Russian economy: Putin ‘spends on military like he doesn’t care’
That reports Bloomberg recently, citing the draft Russian budget for 2025. In addition, spending on defense and national security in 2025 is expected to account for about 40 percent of total government spending. This would exceed the combined allocations for education, healthcare, social policy and the national economy.
Putin’s economic plans for 2025 suggest that he is preparing Russia for a prolonged conflict with Ukraine. © IMAGO / ZUMA Press Wire/Gavriil Grigorov/Kremlin Pool
Elina Ribakova, an economist at the Peterson Institute for International Economics, told the Financial Times (FT): “Putin spends on the military like he doesn’t care.” The magazine The Bell wrote that the increase in military spending suggests Putin is pursuing a war economy. Even if the war in Ukraine ends, funding for the army and the bloated defense sector will remain a top priority. Ribakova sees it similarly. The Kremlin no longer feels the need to “act as if there could soon be a return to normality.”
Putin is damaging Russia’s economy by depending on the war in Ukraine
But Putin’s attempts to make the Russian economy dependent on the Ukraine war could prove counterproductive. Despite Western expectations, the Russian economy has remained robust so far, at least according to Putin. This is due to the high level of investment in the Ukraine war, such as in the defense industry, which stimulates economic growth. In addition, more jobs will be created, especially in the defense industry. However, in the long term, high military spending will not solve the problems of the Russian economy.
The question arises as to how long the Kremlin will be able to sustain these high investments. Challenges are emerging in key economic sectors, such as oil and gas, which represent important sources of income for Putin. Western sanctions could cause important trading partners to withdraw for fear of side effects. A recent example is India, which does not want to buy liquid natural gas (LNG) from Russia’s Arctic LNG-2 project.
Can Putin afford an end to the Ukraine war?
A war-dependent economy would mean that Putin could not afford an end to the Ukraine war. This would mean that the state’s high level of investment, which is currently stimulating economic growth, would no longer occur. In addition, sooner or later Russia will run out of money anyway. “Then they have to stop [zu investieren, Anm. d. Red.] and there will be a recession,” Yuriy Gorodnichenko, an economist and professor at the University of California, Berkeley, warned Business Insider. However, he did not specify a time when this scenario could occur.
It is well known that the Russian economy is struggling against stubborn inflation, high unemployment and “overheating”. It is therefore questionable whether Putin can really use a longer war in Ukraine. (bohy)
