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Russia’s wartime economic boom has collapsed into stagnation, with 21% inflation and labor shortages forcing the Kremlin to choose between the war machine and social stability.

The seemingly unstoppable momentum of the Russian war economy has finally run aground. After years of defying Western sanctions through massive military spending, Russia is now facing a grim reality of economic stagnation, skyrocketing inflation, and a critical labor shortage. The "wartime boom" that kept the Kremlin afloat is over, leaving Vladimir Putin with a dangerous dilemma: guns or butter?
For the first three years of the war in Ukraine, Moscow managed to paper over the cracks. Defense factories ran 24/7, creating jobs and pumping cash into the system. But in 2026, the bill has come due. The economy is overheating, inflation has hit a stubborn 21%, and the Central Bank is out of levers to pull. The illusion of prosperity is fading, replaced by the hard math of attrition.
The fundamental problem is structural. Russia has cannibalized its civilian economy to feed the war machine. Every ruble spent on a tank is a ruble not spent on education, healthcare, or infrastructure. While military output has surged by 50%, the rest of the economy is flatlining.
"This is the classic stagnation trap," explains an economist from the Atlantic Council. "You can pump up GDP with government spending for a while, but eventually, you run out of workers and you run out of capacity." The labor shortage is particularly acute. With hundreds of thousands of men at the front and thousands more fled abroad, factories cannot find workers. This drives up wages, which drives up inflation, creating a vicious cycle that the Central Bank's 16.5% interest rate cuts cannot fix.
The cracks are visible everywhere. In the regions, public services are crumbling as budgets are diverted to the federal "special military operation" fund. The cost of living for ordinary Russians is soaring, with the price of basic staples outpacing wages.
What does this mean for the war? A stagnating economy means Putin cannot fight forever. The ability to recruit mercenaries with high cash bonuses is eroding. The ability to manufacture advanced weapons is limited by the lack of skilled labor and high-tech imports. Russia is entering 2026 not as a rising power, but as a nation eating its own tail to survive. The economic winter has arrived, and it promises to be long, cold, and potentially fatal for the regime's ambitions.
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