"The Kremlin continues to prioritize maintaining the facade of economic stability by pursuing economic policies that will likely exacerbate Russia's economic instability. Putin claimed during SPIEF on June 20 that Russia's debt is not growing and refuted claims that Russia's economy is declining. Putin claimed that the idea that Russia's economy is only tied to raw materials and is dependent on hydrocarbon exports is "outdated," but that Russia aims to increase its non-oil and gas exports. Putin claimed that inflation in Russia decreased to 9.6 percent as of June 16 and that he expects inflation to fall to seven percent by the end of 2025. Putin used his speech to focus on reductions in the poverty level in Russia. Putin also highlighted Russia's low unemployment rate, claiming that the rate has stabilized around 2.3 percent since October 2024. Putin did not speak about Russia's labor shortages that are causing this low employment rate, however, in contrast to his 2024 SPIEF speech in which he acknowledged that Russia was suffering from labor shortages and highlighted the need for skilled migrant labor to increase Russia's economic growth. Putin may be attempting to gloss over his ongoing efforts to leverage migrants to mitigate ongoing labor shortages amid increasing anti-migrant sentiments in Russia.
The Kremlin has repeatedly attempted to posture the Russian economy as strong and stable, claiming in recent months that inflation was between nine and 10 percent when the actual figure was likely closer to 20 percent. Putin's June 20 claim that Russian inflation is 9.6 percent is likely also false. ISW has observed reports that domestic consumers in Russia continue to face rising prices for staple food items, such as potatoes and butter. Putin also failed to acknowledge the growing detrimental effects of high interest rates of 20 percent on the Russian industrial sector. Russian steel company Severstal head, Alexander Shevelev, warned on June 19 that metallurgical production facilities are at risk of shutting down due to low consumer demand and high interest rates. Russian Central Bank Chairperson Elvira Nabiullina notably stated at SPIEF on June 19 that Russia's economy grew at a high rate for two years because Russia was using "free resources," including Russia’s workforce, production capacity, import substitution, the liquid assets of the National Welfare Fund, and the banking system’s capital reserve, but that Russia has exhausted many of these resources and needs to think of a new growth model. ISW previously assessed in early June 2025 that the Russian government was likely pressuring Nabiullina to lower Russia’s key interest rate to reduce the impact of high interest rates on the Russian budget and civilian industries.
Putin's efforts to frame the Russian economy as stable and growing are part of his efforts to balance social support programs with Russia's military needs and maintain his support among the Russian population despite the growing economic costs of his war in Ukraine. ISW continues to assess that Kremlin efforts to pressure the Central Bank into prematurely lowering the key interest rate to maintain the facade of economic stability may backfire and contribute to elevated levels of inflation.
Putin is attempting to obfuscate the reality that increased investment in Russia's defense industrial base (DIB) has come at the cost of Russia's civilian economic sectors. Putin stated during his speech at SPIEF that Russia's gross domestic product (GDP) has increased by over four percent annually over the last two years, but claimed that Russia's GDP growth is not solely due to Russia's oil and gas or defense industrial sectors. Putin claimed that Russia's agricultural, construction, logistics, financial, and information technology (IT) sectors have also expanded over the last two years. ISW reported in September 2024 that Russia's 2025 federal budget allocated 13.5 trillion rubles ($145 billion) toward "National Defense" expenditures and another 3.5 trillion rubles ($37 billion) toward "National Security," meaning that Russia committed about 41 percent of its 2025 expenditures to defense and security expenses. Russia allocated 6.4 trillion rubles ($69 billion) to its 2025 "Social Policy" budget in comparison, which underscores the disparity between Russia's investment in its defense industrial sectors compared to its civilian sectors.
Putin highlighted Russia's DIB growth during his speech and called for further integration of civilian and defense industrial sectors in order to facilitate greater innovation and increase dual-use goods production. Putin claimed that Russia's DIB has increased its output "many times over" and is "mastering" new equipment and weapons. Putin called for Russia to move away from dividing companies between the defense industrial and civilian sectors of the economy and to quickly implement innovations from the civilian sector into Russia's defense and security. Putin called for Russia to decrease the time between formulating an idea and its implementation and called for Russian military commanders and heads of defense industrial enterprises to be more involved in production decision-making processes. Putin pointed to drones, which Putin called the most effective means to destroy expensive military equipment, as an area where Russia can increase efficiency to ensure Russia's security and solve problems in Russia's DIB. Putin framed Russia's investments in artificial intelligence (AI) as purely focused on economic development and civilian sectors during his speech at SPIEF, although Russia is already working to integrate greater AI and machine learning (ML) capabilities into drones along the frontline. Russia undertook a concerted campaign to centralize Russian drone units and drone production efforts in late 2024, but Putin appears to be acknowledging that Russia's new drone production and testing mechanisms must retain a rapid innovation cycle."
