Russia’s war-driven economy shows signs of stalling as defence industry falters

Russia’s military-industrial complex, which has powered much of the country’s wartime economy, is showing its serious signs of weakness. Official data from Rosstat indicate that after nearly three years of rapid expansion, production in key defence-related industries has entered stagnation or even decline.

According to the data, the manufacture of fabricated metal products — which surged by 26.4% in 2023 and 31.6% in 2024 — unexpectedly fell by 1.6% year-on-year in September. Similarly, output of “other transport vehicles” — a category that includes tanks and armoured personnel carriers — slowed sharply, rising only 6% in September compared with 61% in August, Caliber.Az reports. 

Month-to-month figures look even bleaker. Production of finished metal goods dropped by 6%, while “other vehicles” plummeted by 20%, according to estimates from Raiffeisenbank.

“The data on the military industry look shocking,” analysts at MMI wrote, noting that for the first time, the defence sector dragged down overall manufacturing performance. In September, Russia’s manufacturing index rose just 0.4% year-on-year, down from 2.4% in August — its weakest growth since early 2023.

Denis Popov, chief analyst at Promsvyazbank (PSB), said the slowdown shows that “industry, which accounts for around 30% of Russia’s GDP, has virtually stopped growing.” Overall industrial output rose only 0.3% year-on-year in September, compared to 5.6% a year earlier.

Independent analysts estimate that industrial production has fallen by 3.6% since December, while civilian industries have been contracting throughout 2025 — down 1.1% as of September. According to experts from the Institute of Economics of the Russian Academy of Sciences, 18 of 24 manufacturing sectors tracked by Rosstat are now in recession, together representing nearly 80% of all industrial goods.

Economists say the downturn is closely linked to tightening government finances. With budget revenues hit by a 21% drop in commodity income and a deficit five times higher than planned, the Finance Ministry is expected to cut spending in the fourth quarter to stay within its fiscal targets.

“This may be a sign that plans to tighten fiscal policy will soon weigh on industrial growth,” warned Natalia Orlova, chief economist at Alfa Bank. Machine-building — heavily dependent on state defence orders — already slipped 0.1% in September, after growing 15.7% in August.

Russia’s economy may be cooling faster than expected. The Institute of Economics estimates that GDP shrank by 0.6% between January and August, with growth nearly flat at 0.4% in both July and August.

Adding further strain, new U.S. sanctions targeting Rosneft and Lukoil threaten to disrupt Russian oil exports to India — one of Moscow’s key markets. 

Once sustained by massive wartime spending, Russia’s economy now faces the consequences of its dependence on defence production, and the limits of a budget stretched by war and sanctions.

By Sabina Mammadlli