Tax hikes and recession warnings: The military industry still supports Russia's economy, but many other sectors are facing serious problems.
Warning signals related to the Russian economy are increasing. Even high-ranking government officials are warning of a significant decline in growth. The government has had to increase VAT and some other rates to be able to cover huge military spending.
Recently, US President Donald Trump called Russia a "paper tiger" and said that the economy is in "terrible shape". But is the country really in danger of a crisis, asks German public broadcaster ARD, answering some of the most important questions about the Russian economy.
Which sectors are in crisis
There are clearly problems in many sectors, ARD points out. "The situation is difficult in some sectors," said the head of the Russian Central Bank Elvira Nabiullina a week ago, giving examples from the oil industry, as well as coal and steel. At the same time, car manufacturers are complaining of a decline in turnover.
Housing construction is also stagnant after the end of state-backed mortgage loans. And now, with the increase in taxes, the pressure on retail trade is also increasing.
How big will the growth be?
The European Bank for Reconstruction and Development has lowered its forecast for Russia's growth and expects only an increase of 1.3 percent this year. However, this is still more than the indicators for the eurozone or Germany, for which no more than 1 percent is expected.
At the same time, the Russian Finance Ministry reduced its growth forecast for this year from 2.5% to 1.5%. The head of "Sberbank" German Gref even warned of a crisis: if the Central Bank does not sharply lower interest rates, the country will fall into recession.
How does the Russian government react?
From the beginning of next year, VAT will increase from 20 to 22 percent. What's more: the tax will also have to be paid by smaller businesses with a turnover of over 10 million rubles (about 100,000 euros) - until now the limit was six times higher.
The increase comes on the one hand unexpectedly, notes ARD and recalls that in 2024 President Putin promised not to touch taxes until 2030. On the other hand, this step has long seemed inevitable in the context of the large budget deficit - 43 billion euros only until August.
The money is needed to finance defense and security, the finance ministry wrote. In other words - it admitted that it is needed to continue the war.
How much does the war weigh on the Russian economy?
The war against Ukraine has disrupted the wage model in Russia. Due to the shortage of personnel, many companies outside the arms industry have had to start paying higher wages in order to retain their employees or hire new ones.
As for the costs of waging war - they are difficult to name, but the budget expenditures for defense and internal security alone this year will amount to 135 billion euros - about 40 percent of the total costs, as calculated by the ARD. However, these do not include the long-term costs caused by sanctions, which lead to technological lag due to import restrictions, as well as military costs. The fact is that both Russian regions close to the border and those further inland, as well as the oil industry, are suffering seriously from the attacks by which Ukraine is defended.
How affected is the Russian oil industry?
The Russian oil industry has long suffered from sanctions. Moscow is forced to sell fuel at lower prices on the world market - mainly to India and China.
Meanwhile, however, the drone attacks carried out by Ukraine are also having an increasingly greater impact. Dozens of refineries in the European part of Russia were affected, some of them had to stop working for months. The government has already admitted that there is a crisis.
Deputy Prime Minister Alexander Novak extended the ban on the export of gasoline and diesel until the end of the year, since there is not enough fuel in Russia itself.
What is behind Trump's formulation of the "book tiger"?
Russia is weak and after three and a half years of war without real successes, it looks like a "book tiger" - this is what Trump wrote on his Truth Social platform. After a meeting with Ukrainian President Volodymyr Zelensky, he even expressed confidence that with EU support, Kiev would be able to regain its original territories. Vladimir Putin and Russia are in great economic difficulties, Trump also wrote.
Thus, the American president changed his positive tone towards Moscow, notes ARD. If the rhetoric shifts to new sanctions against the Russian economy or to stronger military support for Ukraine, this will indeed be a heavy blow to Russia. It was the additional pressure on the oil and gas sector that has made Russia's military budget even more difficult. But for now, it is far from certain that Trump will actually take action.
What will happen if Russia ends the war?
A possible end to the war would also put an end to the sanctions and would lead to an end to Ukrainian attacks on the Russian oil industry. At the same time, given the problems in the civilian sector, the arms industry is the branch that still supports economic growth.
The sector accounts for eight percent of GDP, respectively, the transition to a "peaceful economy" would lead to a significant decline. In addition, it is not known what will have to be done with those who return from the front, i.e. then there will be a risk of unemployment, notes ARD.