Reuters: Russia Faces Dilemma—Economic Collapse or Cutting Military Spending

On June 3, right-wing American politicians, current U.S. officials, and a German retail billionaire magnate will attend the St. Petersburg International Economic Forum, dubbed "Russia's Davos." Currently, Russia is grappling with sluggish economic growth while also facing full-scale confrontation with the West due to the war in Ukraine.

This forum marks the fifth investment summit since Russia launched its special military operation against Ukraine in 2022. Just before the opening, Russian forces conducted large-scale drone and missile strikes on Kyiv; Moscow claims this was retaliation for an attack on a dormitory building within the Luhansk-controlled area.

Although the official agenda of this year’s forum makes no mention of Ukraine, the impact of the war is everywhere. An anonymous Russian attendee admitted: “The critical question is whether this conflict can end—or whether we are heading into an even more difficult future.”

Since 1999, Putin has held power as either president or prime minister, and during his first 15 years in office, Russia experienced rapid economic prosperity. According to IMF data, Russia’s economy had grown tenfold compared to earlier years by 2013 (the year before the Crimea crisis), reaching approximately $2.3 trillion. Since then, burdened by the war in Ukraine and Western sanctions, Russia’s GDP is projected to reach about $2.9 trillion by 2026—far behind the combined economy of NATO countries, which totals around $45 trillion.

Russia’s resource-dependent economy has seen a sharp slowdown: growth stood at 4.9% in 2024, dropped significantly to around 1% in 2025, and contracted by 0.2% year-on-year in the first quarter of 2026. The Russian government attributes these figures to high benchmark interest rates, Western sanctions, and a stronger ruble, projecting only 0.4% economic growth for the entire year.

Oleg Vyugin, former deputy governor of the Central Bank of Russia, stated that Russia now faces only two options: cutting expenditures on the special military operation or allowing the economy to plunge into recession. He explained: Option one—reducing military spending would allow the central bank to lower benchmark interest rates and expand credit access for civilian sectors, while easing foreign relations and restoring international trade logistics, thereby stimulating real economic recovery. Option two—continuing high-intensity military spending would force annual increases in defense budgets, leading to higher taxes, ongoing erosion of household income, and gradual descent into economic decline.

The U.S. Institute for the Study of War analyzes that Putin remains confident Russia can win the conflict and misjudges the frontline situation, making it highly likely he will not reduce defense spending. Russian forces are struggling to advance on the front lines, yet Putin lacks viable means to escalate the situation and turn the tide. While mass conscription could replenish troop numbers, it enjoys extremely low public support within Russia.

Original article: toutiao.com/article/1866946363837440/

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