Thread by @ArturRehi

The most unpleasant forecasts regarding the Russian economy are beginning to materialize. What analysts cautiously spoke about a year ago is now being discussed openly even by the most pro-government Russian economists: the safety margin is rapidly shrinking. While Putin talks
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about “stability” and “growth,” the reality looks far more prosaic: a country that unleashed a war of aggression against Ukraine is methodically burning through its own financial system. According to estimates by Germany’s BND intelligence service, Russia’s real military spending

reaches around 10% of GDP and nearly half of the federal budget. In fact, actual expenditures are 66% higher than officially declared, due to hidden budget lines, Defense Ministry construction projects, military IT infrastructure, and social payments to servicemen. In simple

terms, money is being poured into the war on a scale that can no longer be concealed by accounting acrobatics. Against this backdrop, the banking sector is starting to crack. The share of non-performing loans in retail portfolios exceeds 13%, in corporate lending around 11.5%,

and in the small and medium-sized business segment nearly 19%. These are no longer “temporary difficulties” but a systemic signal. Banks are increasingly restructuring debt, rolling over arrears, and sweeping toxic assets under the rug. Formally, there is no crisis yet - no one

is storming ATMs. But the classic symptoms are already visible. A separate chapter concerns developers. A sector that for years thrived on subsidized mortgages and cheap money has suddenly discovered that the party is over. Sales are falling, interest rates are high,

and debt burdens are excessive. In informal discussions, the assessment is increasingly heard that almost 100% of developer loans are essentially problematic - they just have not all been formally recognized as such. The irony is that the real estate market experienced

a kind of boom for a time, as apartments were actively purchased by soldiers or their families who received large payments for contracts, injuries, or deaths. A whole stream of newly minted “millionaires” supported demand. But that stream has largely dried up, and the payments

themselves are increasingly reduced or delayed. Russia’s largest developer, Samolet, built 4.5 million square meters in 2025, or about 10% of total national construction volume. Only 1.5 million square meters were commissioned, meaning only roughly one third of the housing found

buyers. The story of Samolet became symptomatic: the company publicly signaled difficulties with its debt burden and the need for government support. They have warned that their collapse will drag down the entire market and the banks along with them. Yet no large-scale state

rescue operation followed. When major companies in Russia publicly ask for help, it usually means they have already sought assistance through internal channels and were refused. Now they have been refused after going public as well. A state waging war cannot easily finance

the front line, the security apparatus, and rescue all developers at the same time. The problem is that banks and developers are tied by a common financial cord. Developers borrow from banks, banks hold their bonds, and mortgage portfolios depend on square meter prices.

If developers start collapsing en masse, bank balance sheets will crumble next. And then comes the classic sequence - higher reserves, tighter lending, depositor panic. Russian Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has acknowledged the onset of

a banking crisis. However, its conclusions are based on data that is already two months old, and in current conditions that is almost archival history. Over the past two months, pressure on liquidity has intensified, borrowing costs have risen, signals of debt servicing problems

have increased, and budgetary strain has continued to grow. Therefore, CMASF’s statement reflects a point the system passed earlier rather than the current reality. If a crisis was visible in old data, the latest dynamics suggest deepening rather than stabilization. Inflation

in Russia has effectively slipped out of control and settled at persistently high levels - around 0.2% per week according to official figures, which translates into 6-7% annual price growth. And that is only what Rosstat records. In reality, inflation is likely even higher.

After the VAT increase on January 1, 2026, businesses received a convenient explanation for mass price revisions: under the pretext of “tax burden,” companies incorporate not only real cost increases but also the accumulated inflationary overhang. As a result, almost everything

is becoming more expensive - including goods that are not even subject to the higher VAT rate. Formally the tax is to blame, in reality it is the money supply overheated by military spending and businesses trying to hedge against further instability. The irony is that a state

that launched a war under slogans of “greatness” is gradually approaching simple financial exhaustion. When half the budget goes to military needs and non-performing loans grow at double-digit rates, sustainability becomes a matter not of ideology but of arithmetic.

And in this case, the arithmetic is ruthless. Now even pro-government economists are giving Putin at most 3-4 months, after which he will have to make very difficult decisions regarding the “Special Military Operation.” Essentially, he will be left with only two options -

either end the war, or implement a full-scale mobilization of the population and the economy for the war effort. But each of these options ultimately leads to the complete collapse of the Russian system.