Bleak forecast for Russia's economy

Andrey Klepach, chief economist at Vnesheconombank, a key Russian state bank, has issued a grim forecast for Russia's economy, citing increasing losses from sanctions and Western isolation. He stated that Ukraine's strikes on ports, infrastructure, and chemical and oil refining plants are causing significant damage, while Russia is falling further behind globally in technological development.

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We are falling behind. We are losing both the technological and economic competition in the world. And, as I said, we are falling behind not only China and the US – in some areas, even Ukraine is ahead of us.

"We are falling behind. We are losing both the technological and economic competition in the world," Klepach said. He noted that Russia is not only lagging behind China and the US but is also being surpassed by Ukraine in some areas. Despite Ukraine's economy being partially destroyed and facing a demographic catastrophe, it is sustained by massive financial aid, which Klepach estimates constitutes nearly 50% of Russia's budget for military and other expenses.

Klepach warned that Russia cannot win this "war of attrition" and is living under the illusion that the situation will collapse. "It hasn't collapsed and it won't collapse. And our expenses and losses are increasing," he continued. He recalled that after economic growth spurred by the war in 2023-2024, the Russian economy began to contract this year. Investments have sharply decreased, affecting many civilian industrial sectors from aviation and construction materials to clothing, textiles, and food processing.

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In this war of attrition, we have no chance of winning. We are living under the illusion that everything will collapse there. It hasn't collapsed and it won't collapse. And our expenses and losses are increasing.

The economist also blamed the Russian Central Bank's strict policies for at least half of the economic downturn. He highlighted that the conflict in Ukraine, involving NATO, has lasted longer than the Great Patriotic War, with no end in sight. Both sides are increasingly targeting each other's economies. Klepach stated that losses from Ukrainian strikes on Russian infrastructure, including ports, oil and gas sectors, chemical plants, and logistics, are growing and have become a significant macroeconomic obstacle to Russia's economic growth.

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The losses due to the strikes of the Ukrainian Armed Forces on our infrastructure – ports, oil and gas sector, chemical industry complexes, and logistics – are increasing and have already become a significant macroeconomic obstacle to the growth of the Russian economy.

He recalled that after the US tightened sanctions at the end of 2025, India and China began reducing their purchases of Russian oil, despite claims to the contrary. Klepach predicts that due to potential new sanctions and increasing losses from Ukrainian strikes, the Russian economy might grow by only 1-1.5%. He believes this will inevitably lead Russia to a "social crisis" that could erupt unexpectedly, drawing parallels to the February Revolution and the collapse of the Soviet Union. While he doesn't believe Russia will disintegrate, he is almost certain of facing a social crisis and increasing economic backwardness.

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I believe that Russia will not fall apart, but I am almost certain that we will face a social crisis. We will not collapse economically, but our lag will increase, along with all the consequences that follow.