Introduction

If the war in Ukraine ends, Russia’s economy is likely to face significant challenges and potential crisis. The effects on the Russian economy could include:

Economic Downturn

A sharp economic contraction is probable as massive defense spending, which has been driving growth, would be scaled back.

The economy could experience a severe recession due to the sudden reduction in war-related expenditures.

Unemployment Surge

Demobilization of soldiers and layoffs in the defense industry could lead to high unemployment.

The civilian sector, which has been neglected during the war economy, may struggle to absorb displaced workers.

Political Instability

Large numbers of unemployed soldiers and defense workers could create conditions for political unrest, similar to post-WWI Europe.

Structural Imbalances

The war has distorted Russia’s economic composition, favoring defense firms at the expense of small and medium-sized businesses serving the civilian sector.

Rebalancing the economy away from military production will be challenging and potentially destabilizing.

Fiscal Challenges

The government will face difficult choices in managing its budget without the justification of wartime spending.

Maintaining a large military without war could choke off economic growth, while shrinking it could trigger a recession.

Sanctions Impact

The full effect of Western sanctions may become more apparent without the offsetting factor of war-driven economic activity.

Technological Regression

The economy may struggle with technological backwardness due to brain drain and lack of access to Western technology.

Long-term Stagnation

Russia could face a period of prolonged economic stagnation similar to the late Soviet era

Conclusion

The end of the war presents a significant dilemma for the Russian leadership, as both continuing and ending the conflict pose serious economic risk