For all the wartime economy’s resilience, there’s not much good news these days. The dynamism once attributed to the rapid increase in nominal wages and price levels is collapsing. According to materials gathered by Izvestiya, 173,000 new companies were opened in 2025—a 20% decrease compared to 2024 and the worst statistical result in 14 years. The number of liquidations rose more than 15% to 233,000. Presumably concentrated among small businesses serving ordinary consumers—many of which may have appeared since 2022—business opportunities are shrinking. With them, so are the avenues for the private sector and business owners to profit from the war. While the net decline in total businesses was small—just 2%, to about 2.6 million—it raises the question of how businesses will manage to stay open.
Productivity breakthroughs can only support demand for the class of businesses most likely being affected if they lead to increases in wages. But because of the manner in which the regime has used the public purse for income transfers, raised wages for public-sector employees, and tied the minimum wage to «living wage» calculations, rising wages are pro-inflationary. The Bank of Russia’s decision to hold the key rate at 16% is driven by fears that a hefty rate cut would spark another wave of 2023−24-style inflation. For January, annualized inflation surged to 1.7% because of the cumulative effect of the VAT hike to 22%, higher utilities tariffs, and—to a much smaller degree—the 0.5% rate cut in December. For context, the end-of-year figures for 2025 showed 5.6% inflation, with Bank of Russia surveys suggesting prices fell in 82 of 85 regions even as subcategories for food continued to shoot up.
Business openings and inflation management are intertwined through the politics of wartime inflation (and the politics of inflation in any economy). Inflation is a social and political phenomenon. What matters most for Russia’s wartime economy is not necessarily the exact rate at which inflation is occurring—though rates above 5−6% entail significant risks. Rather, it’s the distributional consequences of inflation that matter. In other words: who ends up paying?
The rise in entrepreneurial activity from the fall of 2022 until 2024 was linked to the fact that consumers of various stripes bore the brunt of inflation. Positive business sentiment surveys since the invasion are logical from this perspective. The flood of military spending, bonuses, and the like gave businesses—especially those exploiting sanctions-related arbitrage—carte blanche to soak their customers in markets facing significant supply/demand imbalances. These dynamics were intensified by the regime’s approach to financing the defense sector and strategic businesses: by granting big businesses feeding the war subsidized credit amid high interest rates, they could then invest in construction, consume more, or outbid others for labor. Smaller businesses supplying them benefited, even as wages surged. What began as a temporary real-terms wage increase was swiftly overtaken by inflation, but the gap didn’t widen to unsustainable levels until 2025.
Demand-side data suggests the rate of business liquidations will continue to accelerate while the number of new businesses opening will fall. In the same way that housing construction drives demand for consumer durables—refrigerators, washing machines, dishwashers, coffeemakers, and so on—businesses need physical space to equip and kit out, creating similar kinds of demand. Net real-estate investment fell 24% in 2025 compared to 2024, to about 1 trillion rubles—which is less than 0.5% of GDP if we believe official GDP data. I need to dig up Q4 data, but for context, as of Q3, office investment was down 9%, warehouses were down 42%, retail was down 11%, and developer projects (of which about half of floorspace went to housing) were down 30% in annual terms. Yet despite much weaker demand from high interest rates, new-build prices for homes—at least—keep rising, by 20−25% in Moscow and St. Petersburg leading the pack.
Some of this on the business side may be attributed to over-building a few years ago, when no one knew when the sudden burst of growth from war spending might end. However, the pullback is more indicative of how most businesses are finally losing the distributive battle over inflation. Even as it falls, inflation remains too high relative to growth. With interest rates still very high for the average consumer or smaller business, it’s likely that more business formation is taking place among people registering what are effectively consultancies or types of businesses they can run from home. This, in turn, feeds into the cost-of-living issue, since you still need space, equipment, time, and a car or reliable means of transport. That prices for new builds in major cities keep rising proves households are scouring the market for financial and physical safety—particularly when able to live near a major job market that ideally has access to public transport, since vehicles are so expensive.
The only way a growing number of businesses could stay afloat would be to hike prices or otherwise keep prices steady but offer consumers less. They could attempt to do so, but would lose their business to competitors at lower prices. Fortunately for importers, the ruble is relatively strong against the dollar now, back in the 75−80 band. At that exchange rate, importers can probably increase their margins slightly. But weak consumer demand is the prime culprit behind the stronger ruble. I personally don’t buy the real-wage-increase narrative, yet even its domestic boosters are admitting it’s over after a year of just 1% GDP growth.
With policies raising prices on goods or utilities and more pressure to collect taxes from businesses with very small annual turnover, 2026 will be a difficult year for entrepreneurs. Should they succeed in raising prices, inflation will remain higher—along with interest rates—and demand will weaken further. Should they cut prices to stay afloat, greater consumer demand may still drive some prices higher, and any increase in imports will weaken the ruble, also adding to inflation. No matter the outcome, the public will eventually bear the distributive cost, as any price declines will also threaten jobs and business owners’ consumption.
The technocracy lost control of macroeconomic stability by the end of 2024. Last year, they were lucky enough to muddle through with marginal interest-rate decreases. This year, with a lower oil-price environment and growing uncertainty, they won’t be so lucky. The good times have already rolled. What’s left is a mess of contradictions for economic policy—for which only a major recession and pullback in Ukraine can bring restabilization.
