Now that there’s no denying economic reality, the race is on to muddy the waters with the public and, more pointedly, to find new ways of reshaping political narratives around falling living standards. There is little evidence of any new appetite for a ceasefire in Moscow, nor signs that the Kremlin will relent because of economic pressures. Clearly no one wants failure pinned on them, but a new effort is underway among the cabinet, ministries, and government officials to force difficult conversations. Maxim Reshetnikov’s team at the Ministry of Economic Development has revised its GDP growth forecast down to just 0.4% for 2026. No one is happy.
When Deputy Prime Minister Aleksandr Novak touts a «large margin of safety» for the economy’s ongoing adaptation to its novel macroeconomic conditions in wartime, one should ask who exactly pays for that margin. Officials simultaneously claim that Russians are wealthier than ever and that all the factors visibly worsening life are fine—inevitable, something akin to an annoying weekend weather forecast that may prove false because the weather service is always getting it wrong anyway. That demand for some goods and services is down 20−30% from 2024 highs should be a warning sign.
Macroeconomic accounting is unkind to the regime. Investment is expected to keep falling. Lacking access to foreign capital markets and needing stability amid energy-market volatility, households are bearing the fiscal and savings burden for the state. Whether through taxes on consumption (VAT), taxes on incomes, utility tariff hikes to cover operator expenses, or the literal depositing of savings into the banking system, the Kremlin needs a strong consumer base more than ever. Naturally, the health of that consumer base is flagging as the accumulated damage of the war has taken its toll.
Real-terms consumer spending rose only 0.1% in 2025, while discount retailers saw sales grow 20% and net demand growth was apparently 4%. Novak expects consumer demand growth of just 1.2% in 2026. It is now cheaper to fly domestically than it was last year, owing to declining interest in domestic tourism. Similar stories will eventually emerge in other sectors as investment continues to decline and households keep scrimping. The disjunction is neatly visible in Rosstat data: officials want to sell a narrative in which household disposable incomes have risen roughly 21% in real terms since 2013, while investment has risen over 34% in real terms. Given how much of that investment has gone into industries that do not serve consumers, the problem is clear: even marginal slowdowns in the pace of investment circulating money erase consumer gains and, in wartime, have significantly amplified the inflation that is eating away at the average person’s spending power.
Political pressures to manage the growing disconnect point to far more finger-pointing in the second half of this year. Duma speaker Vyacheslav Volodin complained about the Ministry of Economic Development’s forecast, which assumes a 33.5% increase in utility tariffs over the next four years. Volodin was unfortunately correct in diagnosing one major tension. If inflation is expected to reach its 4% target, these increases would materially add to price pressures and require relief elsewhere. Asking Reshetnikov to explain himself before the Duma, there will evidently be much horse-trading over how to distribute the pain. Tariffs must rise so long as borrowing costs remain elevated. The same issue affects virtually every sector. In the aggregate, the government’s current base case assumes a 1.5% decline in economy-wide investment—or as much as 3.5% in its conservative case.
Yet none of this suggests a compelling case for a ceasefire or a climbdown from current war goals. The cabinet’s response to Putin’s frustration over worsening economic indicators has been to revise its forecasts and expectations downward. What makes the present situation remarkable is that these revisions are the closest thing to a «no» that anyone can give the Kremlin. The pushback is nothing like the level of dysfunction seen during Medvedev’s tenure as prime minister after Crimea—particularly in 2017−2019, when the entire economic-policy apparatus ground to a halt. But it does reflect the twofold pressure to keep the lights on while finding some way, however ineffectual, to communicate the scale of these issues to senior leadership. There can be no doubt, however, that officials are content to shove their problems onto business.
The regime’s pivot to technological sovereignty over import substitution was a slow burn, formalized by the middle of 2025 when the first signs of a structural consumer pullback emerged. To realize that sovereignty, Russian industry must adopt the most advanced production technologies and techniques to bail the Kremlin out of the labor-market consequences of COVID and the war. Businesses are doing what they always do in Russia: demanding tax breaks. Officials are apparently telling them to accept that investment will be lower—or will fall—for a long time and to focus instead on making production as lean as possible. One wonders why companies would sink money into these attempted efficiency gains at scale when so many can already see that demand for their products is at risk.
If revising down expectations is the only thing officials can do when pressed to «fix» the economy, the political system is showing us that its greatest strength is also its greatest weakness. The regime has so thoroughly subordinated state capacity to survival and the war that key components of that capacity are now at risk. If officials cannot do anything to soften the downturn and are instead forced to extract more revenue from the public, they risk a one-way feedback loop: the more the burden is pushed onto businesses or consumers, the longer the downturn lasts. Surging energy prices may have bought them some time, but once inflation rips higher on global shortages of key products, all bets are off. Officials will have to find better ways of managing up—and new ways of punching down.
