Russia’s economy is grinding to a halt as the structural limits of its war-driven expansion become clear, a Ukrainian banker has warned. Kyrylo Shevchenko, former governor of the National Bank of Ukraine, said the Kremlin’s military-fuelled boom had “run out of firepower,” with growth collapsing, energy revenues shrinking and inflation choking investment.
He said: “Russia’s GDP growth has crashed from 5% last year to zero. The transformation of the economy driven by military demand has run out of momentum — and there is nothing left to replace it.” Russia’s short-term recovery in 2023 was driven almost entirely by wartime production and massive state spending. However, Mr Shevchenko said the defence sector’s contribution to growth had peaked, with spending increases now tapering off.
He explained: “Military spending jumped by 53% in 2023 — that was the fuel for Russia’s brief recovery. But this year it will rise by just 3.4%, and the pivot to China and India is done. There’s no more firepower left to keep the economy growing.”
The switch — aimed at rerouting trade flows blocked by Western sanctions — appears to have reached its limits, Mr Shevchenko said.
China and India have continued to buy Russian energy and raw materials at a discount, but have been reluctant to deepen financial cooperation or provide direct military support.
Meanwhile, the energy sector — which underpins much of Russia’s state budget — is coming under mounting pressure. Mr Shevchenko said: “Moscow is now paying the price for its reliance on a narrow export base.
“Oil prices have fallen, global demand has weakened, and Russia’s oil and gas tax revenues dropped 17% in March alone. That leaves a huge hole in public finances.”
The country’s inflation problem is also proving persistent. Annual price growth remains above 10%, forcing the Central Bank of Russia to freeze interest rates at a punishing 21%.
Mr Shevchenko said the result was a squeeze on investment and consumer activity: “With rates this high, the economy simply can’t breathe. Borrowing is frozen and households are cutting back.”
The Russian government had previously presented its wartime economic pivot as a “structural transformation” — adapting to sanctions and mobilising domestic industry. But Mr Shevchenko said that phase had ended.
He warned: “The structural transformation is over. Now come the consequences.”
He added: “We are likely to see a technical recession within months — and this time, military budgets won’t save it.
“Congratulations everybody!”
Western sanctions have continued to impact Russia’s industrial output, while domestic production still depends heavily on imported components now in short supply.
Although official statistics continue to show some resilience, analysts increasingly question the credibility of state data and warn that headline figures mask deeper fragilities.
