Foreign Intelligence Service provides forecast for russia's exit from crisis

Russia has driven itself into a trap by increasing defense spending and making the military-industrial complex the main driver of demand.

This is reported by the Foreign Intelligence Service of Ukraine.

It is impossible to return to the peaceful model without a sharp decline. After the war, Moscow will begin to reduce defense spending, the intelligence service notes.

"The war that the russian federation launched against Ukraine changed the structure of the russian economy. Over the past three years of militarization, the country has found itself in a trap: defense spending has increased to almost 8% of GDP, and the military-industrial complex has become the main driver of demand," the publication says.

This allowed the Kremlin to maintain growth in strategic sectors, but at the same time destroyed the balance and left private business and civilian industries on the sidelines, the intelligence service notes.

"After the war, Moscow will begin to cut defense spending. As a result, millions of people employed in the military-industrial complex will lose their jobs, and entire regions where defense enterprises are concentrated will be left without an economic base," the report says.

In addition, the demobilization of hundreds of thousands of contract workers will also create a shock to the labor market, the department predicts.

"At the same time, the budget is already showing signs of exhaustion. In the first half of 2025, federal treasury revenues fell by almost 17%, mainly due to a decrease in revenues from oil and gas, which are now sold at a significant discount," the publication says.

The growth in oil and gas revenues does not compensate for the losses. The Ministry of Finance is forced to raise taxes and introduce new fees, but this only puts more pressure on business, the department analyzes.

Sanctions and restrictions on the import of technology lead to the degradation of civilian production: russian enterprises are forced to produce cheaper and simpler goods, which reduces competitiveness. In the long term, this deprives the country of the opportunity to return to global markets with high-tech products.

"Thus, russia has found itself in a "military rent trap." The Kremlin cannot sharply reduce military spending without collapse, but it is also becoming increasingly difficult to continue financing the war," the department concludes.

This means that a new economic crisis for the russian federation is inevitable, and getting out of it will require a long-term and painful restructuring of the entire system, the report says.

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