Why predictions of an imminent collapse of the Russian economy may be wrong

By Rajiv Shah

A veteran Canadian journalist, settled in Russia, has stated in a Facebook post that President Donald Trump "is apparently listening to experts who tell him that Russia's economy is on the verge of 'imploding,' and if he just squeezes a bit harder," his Russian counterpart Vladimir Putin "will fall into line."

The likes of people Trump seems to be listening to, according to this journalist include Jeffrey Sonnenfeld of the Yale School of Management, "who has been consistently, even spectacularly, wrong about the Russian economy since the beginning of the war."

In a recent Time article titled "Donald Trump Can Bring the End of Vladimir Putin’s Rule," Sonnenfeld, who has "insisted all along that Russia's economy is about to collapse," writes: "Russia is in real trouble as its economy implodes, and Putin is destroying Russia. And even more importantly, the return of Trump could send Russia’s economy off the cliff, and Trump’s return could deal the death blow to the teetering Putin regime.

"Simply put, the Russian economy is imploding—with Putin cannibalizing the productive economy to fund his war machine. If Putin loses the spigot of windfall oil revenues that has been propping him up for the last three years, then the Putin regime will almost certainly collapse," Sonnenfeld claims, though he does not provide supporting figures.

Challenging this perspective, journalist Fred Wier—who settled in Russia after marrying the daughter of prominent Indologist Tatiana Shaumian—cites other articles that paint a vastly different picture of the Russian economy.

One such article is by Alexandra Prokopenko, a former Russian Central Bank official who went into exile nearly three years ago to protest the war in Ukraine. While she has "zero reasons to support Putin's perspective," Wier notes, her article in Foreign Affairs questions the assumption that "Putin is economically on the ropes."

Titled "Putin Is Not Yet Desperate: Economic Pain Won’t Turn the Tide in Ukraine," Prokopenko argues that Putin’s current economic strategy is "unsustainable," as he attempts to wage war, maintain high social and infrastructure spending, and ensure macroeconomic stability simultaneously.

However, she writes, "Western hopes rest on a false assumption. Russia’s economic challenges are not yet so acute that they will make a meaningful difference in the war in the near term. For at least the next year, the Kremlin should be able to keep its overheating economy from exploding into a full-blown crisis."

She notes that "the Kremlin’s spending spree has propped up the economy, and on the surface, growth and low unemployment have given the appearance of stability. From 2022 to 2024, additional government spending amounted to a fiscal stimulus of more than ten percent of total GDP."

Prokopenko continues: "Banks issued preferential loans worth more than $150 billion, and overall corporate credit expanded by almost 20 percent in 2024. This money was mostly allocated to the construction, agricultural, and retail sectors, as well as to the military-industrial complex—the latter becoming a key driver of economic growth."

Citing figures, she highlights: "Manufacturing industries—the sector to which the military-industrial complex belongs—grew by 7.6 percent in the first nine months of 2024. Wholesale and retail trade, driven by consumer demand, grew by eight percent. Unemployment in Russia almost halved between February 2022 and December 2024, falling from 4.1 percent to 2.3 percent."

According to Prokopenko, these measures are helping Putin "manage the economic fallout of his war in the short term." She adds, "Businesses can survive a year of double-digit interest rates on loans if they cancel investments. With $31 billion in the National Wealth Fund, the government should be able to temporarily address financial problems for corporations it deems too big to fail."

Another article cited by Wier is by Dr. Richard Connolly, published on the website of the Royal United Services Institute in London. Connolly argues that "Russia’s economic resilience is defying expectations, enabling the Kremlin to sustain its war efforts in Ukraine despite mounting challenges, and raising doubts about hopes for a swift resolution."

Senior analyst covering Russia and Eurasia for Oxford Analytica, Connolly points out that earlier, "Kyiv’s supporters placed their hopes on Russia’s economy being its Achilles’ heel," with analysts initially predicting a severe recession, a slump in living standards, and dwindling fiscal resources.

"But these hopes were soon dashed," he writes. "The imposition of capital controls, a surge in federal expenditure, and the successful reorientation of foreign trade at breakneck speed arrested the economic distress observed in the early months of the war."

He further explains: "Although Russia did not avoid a recession in 2022, it was much shallower than expected (GDP fell by only 1.9%) as the economy adapted to its new circumstances. Growth exceeded nearly all expectations in 2023 (3.6%), with this momentum continuing into 2024. Output is likely to have expanded by 3.6–4% last year."

Importantly, Connolly highlights that "Russia’s resilience is not purely financial. The foundations of the market economy built in the turbulent 1990s remain strong. Much of Russia’s unexpected adaptability comes not only from its well-trained and professional economic managers but also from its large and growing class of private businesses."

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