Russia is now on the back foot in its war with Ukraine, having recently crossed the threshold of 1 million total casualties while its spring offensive collapses without having made any major gains. This is happening as Ukraine is ramping up its own attacks on Russian territory. But it’s not just that Russia is losing momentum militarily; it’s also facing economic headwinds.

Is Russia’s wartime sugar rush over? How is the condition of Russia’s labor market? Can Russia’s war economy afford to stop fighting?

Russia is now on the back foot in its war with Ukraine, having recently crossed the threshold of 1 million total casualties while its spring offensive collapses without having made any major gains. This is happening as Ukraine is ramping up its own attacks on Russian territory. But it’s not just that Russia is losing momentum militarily; it’s also facing economic headwinds.

Is Russia’s wartime sugar rush over? How is the condition of Russia’s labor market? Can Russia’s war economy afford to stop fighting?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: Is it fair to say that Russia is on this back foot economically right now?

Adam Tooze: There’s certainly a slowdown. In 2023, 2024, the Russian economy grew by 4 percent. I mean, it’s a $3 trillion economy. So those are substantial numbers. And yes, after contracting mildly in the first quarter of 2026, Russia’s growth is now expected to be as little as 0.4 percent over the whole year, which is kind of in the same ballpark as Germany, for instance. So this is not an economy that’s collapsing, but this is an economy which is no longer growing at the clip that it was earlier in the war. This is a surprise because oil prices are high as a result of the American and Israeli war in Iran. And you would expect that to be boosting Russian growth.

And the fact that it isn’t then requires explanation. And the Kremlin has been working quite hard to provide explanations, blaming labor shortages, excessive government spending of the wrong type, namely relatively unproductive expenditure and Western sanctions for the Russian situation. And what we’re seeing really is a considerable kind of consolidation of the Kremlin position. So they’re putting out forecasts for 2029, which say that Russia is going to return to more rapid growth by then. They’re keeping interest rates high to prevent inflation accelerating too much. Interest rates are as high as 14.5 percent. So the consequence of that is that investment is falling. The ruble is strong. And so we’re not seeing any comprehensive loss of confidence, though, of course, the flow of money in and out of Russia is tightly controlled.

Overall, however, you have to say that Russia’s fiscal position remains really quite conservative. The Russian deficit is 2.5 percent of GDP in the first four months of this year, which is less than half what America is running as a deficit. So it’s a really mixed picture, is what one would say. It’s just not growing at the rate that it was. It’s disappointing. It’s apparently causing political stress. [President Vladimir] Putin has called in the head honchos of his economic administration in the last couple of weeks to give them a dressing-down for the fact that the growth rates are low. And compared to Russia’s optimism—it had in 2026 predicted that it would grow faster than the global average of 3.1........

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