Economic Overview - The prolonged conflict has exposed significant economic issues in Russia, which was previously buoyed by its military-industrial complex [1][3] - President Putin faces critical decisions as the economy shows signs of distress [1][3] Military-Industrial Sector - Initially, the military-industrial sector was a strong growth driver, supported by a multi-trillion ruble defense budget [5] - By September 2025, production capacity for metal products saw a year-on-year decline of 1.6%, marking the first negative growth since the war began [5][7] - The growth rate for military products plummeted to 6% in September, down from 61.2% the previous month, indicating a severe slowdown in production [7] Industrial Output - Overall industrial output grew by only 0.3% in September, a significant drop from 5.6% the previous year [9] - Manufacturing growth was even lower at 0.4%, the lowest rate recorded in 2023 [9] Energy Sector - The energy sector showed a slight improvement with a 1.2% year-on-year growth in September, attributed to a minor rebound in oil prices [11] - However, this growth is threatened by U.S. sanctions on major Russian oil companies and India's plans to reduce reliance on Russian oil [11] Fiscal Challenges - Russia's fiscal situation is dire, with raw material export revenues down by 21% and the fiscal deficit reaching five times the original plan [13][15] - The government announced significant spending cuts starting in Q4, which will directly impact military orders and industrial production [15] Consumer and Investment Trends - Consumer spending and business investments have been declining since Q2, with retail growth dropping from 7.2% last year to just 2.4% in April [16] - Adjusted for inflation, real retail sales have contracted by over 7%, indicating a decrease in consumer purchasing power [16] Economic Outlook - Russia's economy is entering a "technical recession," with previous growth rates of over 4% now unsustainable without military expansion and government spending [17][19] - The International Monetary Fund (IMF) has revised Russia's 2025 growth forecast down to 0.9%, while the Russian government has lowered its target from 2.5% to 1.5% [19] Political Implications - The ongoing war has led to a critical juncture for Russia, with potential choices between continuing the conflict or seeking a resolution, each carrying significant political consequences [26][28] - The future direction of Russia's economy and political landscape hinges on the decisions made by President Putin in the coming months [28]