Inflation, stagflation, and spin – the Kremlin’s economic war propaganda
Russia’s economy is under pressure, but the Kremlin does not want you to know it. Instead, Moscow has launched an all-out campaign of economic war propaganda.
A few weeks ago, Vladimir Putin told(opens in a new tab) Russians that the country’s economy is doing just fine. He even had some positive numbers to back it up: according(opens in a new tab) to the IMF, Russia’s GDP grew 3.6% in 2024 despite sanctions, surpassing the forecasted figures, and unemployment was at a record low of nearly 2%(opens in a new tab). In his New Year’s Eve speech(opens in a new tab), he reassured his compatriots that ‘everything is going to be all right’.
How to eat a cooked tank?
But a closer look reveals a much less optimistic reality. Record-low unemployment rates are actually a sign of massive labour shortages(opens in a new tab), with many Russians either being mobilised for the increasingly bloody(opens in a new tab) war in Ukraine or leaving the country(opens in a new tab) for good. Despite the Russian Central Bank’s efforts to stabilise things – and a brief bump(opens in a new tab) after US President Donald Trump’s inauguration – the Russian ruble is clearly in a downward spiral(opens in a new tab). Food prices(opens in a new tab) are soaring(opens in a new tab), and while official consumer inflation is pegged at 8.5%(opens in a new tab), many analysts believe the real number is much higher(opens in a new tab). Some reports suggest(opens in a new tab) inflation has hit 70% since the invasion of Ukraine in February 2022.
A significant part of Russian economic growth comes from the arms industry, but the long-term benefit for the economy can be questioned. Can you eat a destroyed tank?
You would never guess it from what pro-Kremlin pundits are saying to global audiences. They are even claiming that Russia has actually gotten stronger in recent years. Some go as far as to say Russia is now the fourth-largest economy in the world thanks to the war in Ukraine, or that Putin has somehow showcased Russia’s economic dominance.
The worse things are, the more propaganda we need
A peculiar incident(opens in a new tab) took place during Putin’s recent visit to Moscow State University.
After stating that salaries at the university were below the Moscow average, Putin asked what the average actually is. When he was told that the monthly is around 140,000–160,000 rubles (about 1,360–1,560 euros), Putin looked visibly surprised or shocked and replied, ‘No way! More.’ Maybe he has been fed the same economic propaganda as everyone else and is actually buying into it?
Even if Putin seems out of touch with everyday life in Russia, a more likely explanation for all the economic exaggeration in the pro-Kremlin disinformation ecosystem is that the Kremlin is trying to project a narrative of economic strength.
The aim is to show it can outlast its adversaries and discourage continued support for Ukraine’s defence. Some experts have even called this Russia’s economic war propaganda(opens in a new tab). Narratives about Russia’s resilience have been a staple of pro-Kremlin disinformation for years, aiming to convince other countries that sanctions are not just ineffective, but harmful and counterproductive. But now that things are escalating to the point where even Russia’s mainstream newspapers can’t ignore it(opens in a new tab), doubling down on economic propaganda has become more crucial than ever.
With the help of a ‘shadow fleet’(opens in a new tab) and elaborate evasion schemes(opens in a new tab), Russia has managed to cushion the effect of international sanctions, at least enough to keep the economy afloat and the war machine moving.
However, there is no doubt these measures are taking a toll. The Russian economy is struggling with overheating(opens in a new tab) – where demand outstrips supply, pushing prices up – while also teetering on stagflation(opens in a new tab), where inflation remains high despite stagnating growth.
The Central Bank was forced to raise its main interest rate to 21%(opens in a new tab), the highest in decades, which is putting serious pressure on Russian businesses(opens in a new tab). Some analysts also believe the Kremlin has been manipulating debt figures to hide the true cost of the war(opens in a new tab).
Foreign investment? No, divestment
Perhaps one of the starkest indicators of the Russian economy is its ability to attract foreign direct investment (FDI). Investment is the key to building wealth for the future.
The diagrams below illustrate how the Russian economy was opening up and becoming integrated into the world economy, fuelled by growing energy prices in the beginning of the 2000s, attracting FDI.
This went on until 2022 and the full-scale invasion of Ukraine. From this moment on, a massive, sustained divestment began for the first time in modern Russia, meaning companies pulled out their money. They either closed their businesses or were forced into de-facto confiscations or fire-sales to a Russian, often Kremlin-affiliated, operator. These actions sent a chilling signal to international investors and business. In any event, it was the story of an economy closing around itself.
Most Russian debt is held by large corporations. Many are prevented from international borrowing and are now increasingly forced to turn to the Russian state for renewing their capital base. The Russian state is using state reserves and stability funds, earmarked for pensions, to secure Russian companies, especially in the arms industry.
Difficult days ahead
Things are bound to get worse. The latest sanctions on Russian oil tankers by the US(opens in a new tab) and the 15th EU package(opens in a new tab) have already started to impact(opens in a new tab) Russian oil exports, and the effect is likely to strengthen as former buyers either steer clear(opens in a new tab) of sanctioned vessels or prove reluctant to use them. Russian fossil fuel exports(opens in a new tab) are at their lowest since the beginning of the war.
On top of that, Ukrainian drone attacks on oil facilities are becoming more frequent, with at least thirteen(opens in a new tab) refineries and oil depots hit in January 2025 alone. The US is calling on Saudi Arabia to lower oil prices(opens in a new tab) in an effort to pressure Russia. Given that Russia’s economy is heavily reliant on hydrocarbons, the country’s finances face difficult days ahead.
With over 40% of its budget(opens in a new tab) pouring into the military and security services, the Kremlin’s priorities are clear: war abroad and repression at home. It is unclear whether this slow-motion twisting of the economy will lead Putin to decide to end the invasion of Ukraine. Some experts believe(opens in a new tab) the situation is not dire enough yet to force the Kremlin to change course.
The Ukrainian state and its people are bearing the highest cost from Russia’s aggression. But one thing is certain: Russia’s economy is not immune, despite the Kremlin’s propaganda.
Don’t be deceived.