{"id":3110,"date":"2026-06-27T16:07:15","date_gmt":"2026-06-27T16:07:15","guid":{"rendered":"https:\/\/reliablemovingcrews.com\/?p=3110"},"modified":"2026-06-27T16:07:15","modified_gmt":"2026-06-27T16:07:15","slug":"defence-spending-chokes-russia-to-stagnation","status":"publish","type":"post","link":"https:\/\/reliablemovingcrews.com\/?p=3110","title":{"rendered":"Defence spending chokes Russia to stagnation"},"content":{"rendered":"
BERLIN, June 25 (Reuters Breakingviews) – Vladimir Putin is under siege. Crimea, the region the Russian president seized and occupied in 2014, has become a metaphor for the financial travails of his government. The territory is choking after Ukrainian \u200bplanes damaged its only bridge to Russia, while drones hit its access roads and infrastructure. Kyiv is threatening to turn the \u200cpeninsula into an island<\/svg>, opens new tab<\/span>. Back in Moscow, rapidly increasing defence spending is smothering the central government\u2019s budget. Putin still has the means to pursue his war on Ukraine \u2014 but can only do so by making his own country poorer.<\/div>
The Russian government was planning to shrink the defence budget as a proportion of GDP, from nearly 8% in 2025 to a little \u200bover 6% this year, to the Stockholm International Peace Research Institute. Instead it has already increased military expenditure by 30% in the \u200bfirst quarter of the year compared to the same period of 2025, to 12% of output. Defence spending now amounts \u2060to nearly half the budget, notes<\/svg>, opens new tab<\/span> Janis Kluge, a researcher at the German Institute for International and Security Affairs.<\/div>
Officials in charge of economic policy \u2014 a rare \u200bisland of rational policy makers in Putin\u2019s orbit \u2014 have tried to warn him about the consequences of runaway military spending. Factories churning out military hardware are \u200boverheating, and Moscow must pay ever higher wages to the soldiers it tries to corral to fight in Ukraine. But the rest of the economy is slowing to a halt: official growth forecasts for this year have been downgraded<\/svg>, opens new tab<\/span> from 1.5% to 0.4%. And in spite of his ministers\u2019 warnings, Putin seems in denial by insisting that the slowdown is \u200bnormal after the past years\u2019 growth.<\/div>
Higher oil revenue in the second quarter of the year will provide some breathing space, but Russia\u2019s Urals crude oil \u200bprices are back to their end-February level and may remain there if an Iran-U.S. deal on the Hormuz strait persists. And a relatively strong currency, supported by the \u200ccentral bank\u2019s \u2060high interest rates, limits the amount of roubles the government gets from dollar-denominated oil taxes.<\/div>
The Russian president announced an interest rate cut and the taming of inflation earlier this month, before the central bank had met. Bank of Russia Governor Elvira Nabiullina contradicted him last week by lowering<\/svg>, opens new tab<\/span> rates only by a minimalist 0.25 percentage points, to 14.25%. She warned that the fight against inflation \u2014 now at 5.3% a year \u2014 is far from over, and mentioned the widening budget deficit \u200bas one of the main causes.<\/div>
Ukrainian generals \u200bseem to be able to send \u2060drones on St. Petersburg, Moscow, and Russia\u2019s oil infrastructure whenever they see fit. Putin is in a bind. He may be tempted at some point to do away with relatively sound budget rules and a strict monetary policy, \u200band get rid of the officials that have stood firm in the last few years. That would be the \u200bbest recipe to \u2060send the Russian economy into a fatal tailspin.<\/div>
Follow Pierre Briancon on Bluesky<\/svg>, opens new tab<\/span> and LinkedIn<\/svg>, opens new tab<\/span>.<\/div>

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Breakingviews<\/strong>Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.Sign up for a free trial of our full service at https:\/\/www.breakingviews.com\/trial and follow us on X @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.<\/div>