June and July made clear that the odds of any mobilization taking place before the Duma elections of September 18−20 are vanishingly low. The political blowback would be too great. But assuming that such a policy shift is coming—still an assumption, given Russia’s painfully slow but continued crawl toward Kramatorsk and Slovyansk—the economic consequences of delay are becoming much harder to mitigate. The Russian Union of Industrialists and Entrepreneurs (RUIE) recorded its worst business-climate index reading of the past year in July: 42.4. Any figure under 50 signals worsening market conditions. The fuel crisis has already hit business operations and strikes on logistics centers will almost certainly show up in the August data. The Bank of Russia’s decision to cut the key rate by another 0.25 percentage points, to 14 percent, will do little to relieve the strain. Output is contracting for many businesses, while cost increases from the forced substitution of imports continue to ratchet higher.
Labor markets are flashing a serious warning sign ahead of September. Rates of real wage growth slowed in the first half of the year, according to Rosstat. Real wage gains are difficult to credit relative to consumer demand and likely continue to reflect statistical distortions and spillover from gaps in reporting, such as the consumption of military personnel. Paired with RUIE polls showing that businesses plan to cut their spending on labor, the relative stability of the labor market better reflects Russians’ anxiety about finding work elsewhere. There is a growing realization that the perpetual tightness of the labor market no longer guarantees other options. Russians are opting to save extra cash at the lowest rate since 2015, according to Bank of Russia surveys, even as consumer sentiment continues to deteriorate. Real wage gains for the first half of the year were just 0.3 percent—a quarter of the figure recorded in the first half of 2025. Given that Rosstat reports 34 percent of all enterprises (excluding small businesses) are now loss-making, the economy is approaching a point at which current levels of state spending can no longer stave off an accelerating contraction that should, in theory, rebalance the economy.
Policy biases are also shifting because of the decision to raise the tax burden on consumption and businesses through a VAT hike and higher rates for small businesses. Leaning more heavily on VAT creates a feedback loop with inflation. As the cost of goods and services rises because of other policies, the state’s revenues increase in nominal terms. Yet that nominal increase comes at the expense of all consumers and disproportionately hurts the large majority of the Russian public whose incomes have not risen materially in real terms since 2022. Given the relatively sharp inflation in food prices, utility tariffs, and fuel costs, most have experienced limited real-terms declines. The more dependent the budget becomes on consumption, the more those revenues depend on sustaining otherwise damaging war spending to keep money flowing into an economy that lacks any other structural stimulus. Between the budget’s expanded reliance on consumption and growing labor-market anxieties, something eventually has to break.
The question, as always, is timing. It is exceedingly difficult to predict when a tipping point will be reached, even with so many indicators trending negative. A June survey from INP RAN showed that just 30.6 percent of businesses planned new investment projects—a lower reading than during the 2016 recession and crisis. The economy is undergoing its worst contraction of investment since 2009. That the figures are not worse underscores the degree to which defense firms and state enterprises are propping up the aggregate data, along with the last pockets of resilience among small businesses and larger consumer-oriented private firms. The longer the state refrains from intervening—whether through a virtually impossible de-escalation or the far likelier expanded mobilization—the deeper the current dynamic becomes entrenched. When systems fall further out of balance, greater stimulus or greater pain is required to rebalance supply, demand, price levels, and investment. In this case, Putin’s characteristic indecision and reluctance to take hard decisions until the last possible moment have created a significant cliff-edge risk after the September elections.
What makes this indecision all the more damning is that, while true mobilization may prove more functional than leaving the adjustment to market forces, it cannot cure what ails the economy. Imagine a scenario in which the Bank of Russia is forced to cut rates aggressively, prices and the delivery of key goods are more actively managed by the state, and investment surges. There are no longer enough people to employ productively; the military would expand and therefore absorb still more labor; and a renewed surge in nominal income growth would create risks of a surge in imports.
The choice is therefore terrible. Policymakers must either leave Russians worse off through recession and unemployment or leave them worse off through a new cycle of inflation that cannot be tamed. Even if the regime’s administrative capacity proved remarkably competent, full mobilization would most likely still entail a reduction in living standards. The longer the indecision continues, the greater the relative pain when the adjustment finally occurs. And if Ukrainian strikes on fulfillment centers continue apace, the risks of financial contagion from business bankruptcies just before or immediately after the September elections cannot be ignored. Delay only worsens the pain of adjustment. Unfortunately for Russians, delaying the pain remains the overarching logic of economic policy within the constraints the Kremlin has imposed.
