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Russia  ·  Chronicles · Klaus Dormann

A Controversial Debate: Is Russia's Economy on the Verge of "Collapse"?

June 29, 2026  ·  21 min read  ·  Original (German)
A Controversial Debate: Is Russia's Economy on the Verge of "Collapse"?

On June 11, the Kiel Institute for the World Economy published “Kiel Report 9” on the Russian economy, titled “Endgame: The State of the Russian Economy.” It also includes contributions from other renowned research institutes.

Some may have wondered what exactly is meant by “Endgame.” Has Russia’s economy perhaps qualified for a “final” in competition with other countries? The title certainly piques curiosity! However, the headlines on some of the institute’s other information pages about the report make it clear what the Kiel IfW apparently wants to convey to readers first and foremost.

Provocative Headlines from the Kiel Institute

The IfW’s “media release” on the report is titled “Endgame: Russia’s War Economy Is Reaching Its Limits.” Elsewhere, the IfW Kiel also refers to the new Kiel Report under the headline “Endgame: Russia’s Economy Under Pressure.”

The IfW has also published a German translation of the “Executive Summary,” the first article in the Kiel Report. This summary of the findings is titled “Russia’s Economy in Its Final Stage.” Its authors are Torbjörn Becker, Director of the “Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics” since 2006, and Moritz Schularick.

Professor Dr. Moritz Schularick, President of the IfW Kiel, also explained the findings of the Kiel Report in detail in Politico’s “Berlin Playbook Podcast” in a conversation with Rixa Fürsen (36 min.). The podcast is titled “Russia on the Brink of Collapse.”

What is likely to have stuck with many readers from these “headlines” is this: The Russian economy is under pressure. It is reaching its limits and is on the verge of collapse. The “final stage” has been reached.

Janis Kluge: Russia is experiencing an “economic slowdown”

A surprising number of media outlets have conveyed these messages to the public over the past two weeks. Hardly any newspaper failed to mention the Kiel Report. Numerous experts addressed it in their commentaries.

Ostwirtschaft.de compared the Kiel Report’s theses two weeks ago with assessments by Dr. Janis Kluge, a Russia expert at the German Institute for International and Security Affairs (SWP), particularly with a lecture Kluge gave at Marburg City Hall in May. In a recent interview with t-online, Janis Kluge commented, among other things, on the new Kiel Report. Kluge characterizes the Russian economy as experiencing an “economic slowdown.” He currently sees no signs of a “collapse”:

Question from t-online: “In
light of the problems facing the Russian economy, many observers have already predicted a collapse. Recently, the IfW Kiel concluded that the Russian economy is in its ‘final stage.’ Do you share this assessment?”

Answer from Janis Kluge:

“No, I currently see no signs of a collapse. However, Russia is experiencing an economic slowdown. Due to increased military spending and a labor shortage, the economy had recently been overheating. This led to rising inflation, prompting the central bank to take action. Interest rates were raised drastically, which in turn slowed down the economy.”

Kluge: We also have “crash prophets” here in Germany

In a roughly 70-minute conversation with Janis Kluge about the development of the Russian economy—published on June 27 by the “im Loop” podcast from the financial firm “Finanzfluss”—host Mary Abdelaziz-Ditzow asked right at the start (minute 2):

“Well, it’s often the case that economists—Western economists, that is—predict that the Russian economy is heading into a steep decline. But so far, that hasn’t happened. …”

Janis Kluge replied, among other things (minute 4):

“… what we’re seeing right now—or what we see time and again—is that we have, I’d say, ‘crash prophets.’ We’re familiar with this in Germany, and it’s happening with the Russian economy as well.

There are various reasons why they exist. It’s a bit of an information war, of course. So, it’s also about making Russia look weak, which is perhaps a legitimate concern if one wants to politically support Ukraine and the continuation of sanctions, so to speak. For some, this is a legitimate way of saying, “Yes, Russia is on the verge of collapse; we just need to keep going a little longer.”

Professor Libman expects prolonged stagnation

Prof. Dr. Alexander Libman commented on the topic in an article for the FU Berlin online magazine (“Is Russia Facing Economic Collapse?”). He believes that current developments in the Russian economy point more toward prolonged stagnation than a sudden collapse. Libman’s conclusion:

“As long as the markets in Russia are functioning in principle, they will adapt and keep the economy running—though, of course, there can be no talk of economic growth. This also means that, despite the economic problems, Putin will have money for his war in Ukraine in the foreseeable future.”

Vasily Astrov: Russia Is Still Far From a Real Collapse

Eduard Steiner discussed the Kiel Theses with Vasily Astrov, a Russia expert at the “Vienna Institute for International Economic Comparisons,” on the podcast of the Austrian newspaper “Die Presse.” In the episode titled “Is Russia’s Economy Really in Its Final Stages?”, wiiw expert Astrov summarized his views as follows (starting at minute 12):

Ever since the sanctions were imposed, there have been repeated predictions that the Russian economy is on the verge of collapse. That has not happened.

We do indeed see problems. And these problems have intensified in recent months, especially with regard to economic growth.

But I believe Russia is still a long way from a real collapse. I think there’s a bit of wishful thinking involved when people talk about a terminal stage.

“The Economist”: Russia’s Economy Is Not on the Verge of Collapse

Even the British business magazine “The Economist” took up the topic of “the collapse of the Russian economy”—citing the Kiel Report. The Luxembourg-based website “L’essentiel” has now published a German translation of the Economist article (large portions were published in Russian on Inosmi.ru).

“The Economist” headlines its article:
“Russia’s war economy has problems—but is not about to crash”

The magazine therefore does not expect the Russian war economy to collapse in light of its problems. Regarding the “resilience” of the Russian economy, “The Economist” summarizes, among other things:

Since the invasion of Ukraine in early 2022, Vladimir Putin’s Russia has defied those who have repeatedly predicted an economic collapse. It has circumvented Western sanctions by redirecting its foreign trade toward countries such as China and India. Between 2022 and 2025, Russia’s inflation-adjusted per capita GDP rose by 12 percent. Given the bleak forecasts, that is not a bad result. Despite new pressures, Russia’s war economy is not on the verge of collapse.

The Goldman Sachs indicator points to weak growth

According to *The Economist*, official Russian statistics suggest that real GDP contracted by 0.2 percent in the first quarter compared to the same period last year (Finmarket.ru; dpa/AFX). However, it should be noted that measuring the development of aggregate economic output in the first quarter is complicated by numerous special factors (purchases brought forward to the fourth quarter of 2025 due to the VAT increase in early 2026; fewer working days; exceptionally bad weather).

According to The Economist, a potentially more reliable indicator of economic trends is the “Current Activity Indicator” for Russia, calculated by Goldman Sachs and shown in the figure below. The “Current Activity Indicator (CAI)” points to weak economic growth, not a collapse (see Figure 1 below).

“L’essentiel”: Russia’s war economy is weakening—but not collapsing. June 25, 2026

The Economist also notes that data from the state-owned VEB Bank even point to an acceleration in GDP growth in March and April, partly thanks to rising oil prices.

“The Economist’s” conclusion: “It is highly unlikely that Russia’s economy is in a recession.”

Further insights from “The Economist” on the Russian economy

According to the independent Levada Center, consumer confidence has fallen. However, this decline came from a level that was close to an all-time high in 2025 (see Figure 2 below; Levada Center: Consumer Sentiment Index).

“L’essentiel”: Russia’s war economy is weakening—but not collapsing. June 25, 2026

Jobs may be slightly harder to find than they were a year or two ago. However, the unemployment rate remains close to its record low of around two percent.

Russia is facing increasing difficulties in exporting fossil fuels, the lifeblood of its economy. This is due to intensified Ukrainian attacks on energy infrastructure as well as a decline in oil prices from the highs reached during the Iran war. Nevertheless, total exports of goods in April—the most recent month for which data is available—were slightly above the previous year’s level.

Inflation is now only about half of its recent peak of over ten percent. Real wages, which are already 25 percent above 2019 levels, continue to rise.

“The civilian economy is treading water rather than shrinking”

Regarding the significance of increased defense spending for the resilience of the Russian economy, *The Economist* summarizes:

Last year, the government spent the equivalent of seven to eight percent of GDP on the armed forces. However, compared to prewar levels, this represents an increase of only three to four percent of GDP. This increase is not insignificant, but it is also not large enough to trigger massive knock-on effects. The civilian economy is treading water rather than shrinking.

The Economist: How Putin’s government can finance the war

The magazine describes Russia’s fiscal problems as “not yet acute.” It explains this as follows:

To finance the war, the government can raise taxes, as it recently did with the value-added tax. It can cover the remaining deficit—currently around three percent of GDP—using reserves from the sovereign wealth fund. It can borrow on the largely controlled domestic capital market.

In an emergency, financial officials could even tap into the ruble deposits of companies and households. That would be a last resort with significant consequences. But who would stop them, asks “The Economist”?

“The Economist” expects growth of about one percent in Russia in 2026

In conclusion, “The Economist” states:

All in all, Russia can expect GDP growth of around one percent this year (roughly on par with France or Canada). Tighter sanctions, such as those announced by the United Kingdom on June 16, could slow this growth somewhat. The same applies to further falling oil prices and an escalation of Ukrainian attacks on Russian oil infrastructure. But to actually bring Putin’s war economy to a standstill, “something significantly more radical” would be required.

VEB Institute: This Is How Much GDP Has Recovered Through April

The following chart from the research institute of the state-owned development corporation VEB, showing the monthly trend in real gross domestic product, indicates that Russia’s overall economic output plummeted in January. According to VEB’s estimate, real GDP fell by 3.0 percent compared to December, after seasonal and calendar adjustment (see the right-hand column of the table below the figure). Although aggregate economic output recovered strongly in February and March, GDP grew by only 0.2% month-over-month in April.

Real Gross Domestic Product Index; January 2014=100

*M/M: Month-over-month change in percent;
estimate by the VEB Institute, adjusted for seasonal and calendar factors
VEB Institute: Russia’s Economy in April–May 2026, June 16, 26

GDP and industrial production will grow even more slowly in 2026 than in 2025

The VEB Institute’s report on economic developments in April and May also includes some new forecasts in a table at the end.

The institute lowered its forecast for this year’s real gross domestic product growth to 0.3 percent. In February, it had still expected an increase of 0.8 percent. Thus, the VEB Institute expects slightly less growth in 2026 than the Russian government, which lowered its GDP forecast in May from 1.3 to 0.4 percent.

According to the VEB Institute, annual industrial production growth will decline from 1.3 percent in 2025 to 0.8 percent in 2026.

Preliminary economic data and forecasts from the VEB Institute

VEB Institute: Russia’s Economy in April–May 2026, June 16, 2026

Incomes are rising at a much slower pace, and consumer demand is waning

According to the VEB forecast, growth in real disposable income will slow sharply in 2026 due to the increase in the value-added tax and lower corporate earnings. It will no longer reach 7.4% as in 2025, but will be only 0.6%. However, real wage growth will accelerate slightly from 5.2% to 5.5% in 2026.

Real retail sales growth will slow to 3.0 percent in 2026 (2025: +4.1%). Real sales in the services sector will grow by only 2.2 percent in 2026 (2025: +2.8%)

Decline in industrial production in May; PSB Bank lowers 2026 GDP forecast

The Federal State Statistics Service (Rosstat) reported on June 24 that industrial production in May fell by 0.7% compared to the previous year. From January through May 2026, it grew by only 0.4% year-over-year.

Industrial production;
year-over-year change in percent

Trading Economics: Russia Industrial Production; June 24, 26

The decline in industrial production in May was attributable to a drop in production in the “Mining and Extraction of Raw Materials” (-2.7% compared to May 2025 and -0.2% compared to January–May 2025), with the main factor being the decline in the oil and gas sector.

Growth in “manufacturing” slowed to just +0.5% year-over-year in May (down from +3.1% in April). From January through May, manufacturing grew by only 0.3% compared to the previous year.

This was reported by the state-owned PSB Bank, which lowered its forecast for this year’s economic growth from +1.0% to +0.6%.

Recommended reading:

German-Russian Chamber of Foreign Trade:
Analyses, in German; also in Russian; (selection):

Discussion contributions on the question: “Is Russia’s economy on the verge of collapse?”

Kiel Report: “Endgame: Russia’s Economy Under Pressure” and reports on the publication

Economic Forecasts:

Current Economic Developments; Economic Data for April, May, and June:

Monetary Policy: Key interest rate cut from 14.5 to 14.25 percent on June 19

Fiscal Policy; National Budget and Oil Prices

Fuel Supply, Energy Sector:

Translated from the German original published on ostwirtschaft.de, June 29, 2026.

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