Russia's economy on the brink: record deficit due to war in Ukraine!

Russia's economy on the brink: record deficit due to war in Ukraine!

The economic consequences of Russian military actions are serious. A recent analysis by the American think tank CSIS shows that the net financial results of Russian companies fell by 34 percent in March 2025 compared to the previous year. What is worrying is that every third company in Russia operates at a loss. Food, furniture and clothing manufacturers have been particularly hard hit, with up to a third of them reporting losses. The construction industry is also suffering, with revenues falling by over 30 percent. Another alarming sign is the situation in oil refineries, whose financial results are 94 percent worse than before.

The Russian economy is not only burdened by corporate losses, but also faces falling tax revenues. Companies that remain profitable pay significantly less taxes due to lower income. The energy sector, which accounts for a third of government revenue, is particularly affected: revenue from oil and gas exports fell by 10 percent in the first quarter of 2023. The price of oil fell from $70 to $50, and no price increases are expected in 2026. In this context, Gazprom reports a loss of $13 billion for 2024.

Budget deficit reaches record level

In addition to corporate losses, the Russian government is recording worrying budget figures. In January 2023, the budget deficit was 1.76 trillion rubles (about 23 billion euros), which was the largest budget deficit in at least 25 years, according to the Finance Ministry in Moscow. Revenue from oil and gas exports fell by 46 percent compared to the same month last year. This drastic development is directly related to the high expenditure caused by the invasion of Ukraine, which increased by 59 percent.

The aging of the budget is also reflected in a general decline in other tax revenues, which fell by 28 percent. The Russian government has already started dipping into emergency reserves and alternative sources of income, selling about 500 million euros worth of Chinese yuan and gold in January. A total deficit of 3 trillion rubles is planned for the current year, with more than half of this amount already reached in January.

Decline in the energy sector

The energy sector, a central pillar of the Russian economy, is also showing alarming trends. Coal prices have fallen by 20 percent and are now three times lower than in 2022. This has resulted in 62 percent of Russian coal producers recording losses. In addition, Russia has lost 80 percent of its European gas market due to Western sanctions. China's interest in purchasing more Russian gas or coal has also decreased.

The situation is further exacerbated by the fact that the specific challenges, such as the switch to national software, are not adequately addressed. Experts warn that Russia's National Welfare Fund could be depleted by 2026 - a dramatic fall from $113 billion in 2022 to just $36 billion. The hellish pace of spending Russia is spending on war is equivalent to 7 percent of its gross domestic product and already accounts for 40 percent of its entire budget.

Overall, economic indicators show that the Russian economy is under enormous pressure. However, Russia is mastering the challenge with one of the smallest economies, whose performance is smaller than that of the US state of California. The question remains how long this can continue without deeper cuts becoming noticeable in Russian society.

For more information you can download the analysis from Southeastern Switzerland and n-tv see.