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Putin's Military Pivot: Record Russian Defense Spending

AInvestSunday, Dec 1, 2024 4:59 am ET
2min read


Russian President Vladimir Putin has approved a record defense budget for 2025, allocating 13.5 trillion rubles (over $145 billion) to national defense. This move signals a significant shift in Russia's economic priorities, with defense spending accounting for 32.5% of the total budget. As the war in Ukraine drags on, Putin's decision highlights the country's commitment to maintaining military capabilities and addressing geopolitical tensions.

The record defense spending is likely to have both short-term and long-term effects on Russia's economy and geopolitical influence. In the short term, the increased spending is expected to boost the defense industry and create jobs in the sector. However, some analysts are concerned that this military pivot could lead to a domestic focus at the expense of other sectors like education and healthcare, which may face reduced funding. This could potentially strain Russia's economy and exacerbate internal pressure.

Geopolitically, Russia's increased defense spending may embolden its stance in European relations, particularly in regards to its ongoing war with Ukraine. However, it could also intensify tensions with Western nations, potentially leading to further economic sanctions. Investors should monitor the impact on Russian markets and consider the geopolitical risks associated with this increased defense spending.



The trend in Russian defense spending compares with other major global defense spenders such as the U.S. and China. In 2022, the U.S. allocated 768.2 billion USD (3.5% of GDP), while China spent 293.1 billion USD (1.7% of GDP), according to the Stockholm International Peace Research Institute (SIPRI). Despite the high spending, Russia's defense budget remains lower than the U.S., but higher than China, in absolute terms. This suggests that Russia is focused on maintaining military capabilities and addressing geopolitical tensions.

In the long term, the potential effects of increased defense spending on Russia's economic growth and security are significant. The massive investment in the military, combined with increased spending on national security, is projected to exceed allocations for education, healthcare, and economic development. This heavy emphasis on defense spending could lead to long-term economic strain and impact Russia's relations with other countries.

Putin's signing of the record defense budget also raises concerns about the sustainability of Russia's economic growth. Despite the increase, the budget still faces constraints from international sanctions. According to AP News, the budget is expected to have an "asymmetrical structure," with around 32.5% allocated to defense, up from 28.3% in 2024. However, analysts note that part of the budget is secret, concealing military plans and sidestepping scrutiny. The budget's success depends on managing labor market dynamics, wage inflation, and geopolitical tensions affecting semiconductor supply chains.

In conclusion, Putin's approval of the record defense budget signals a significant shift in Russia's economic priorities. The increased spending on defense is likely to have both short-term and long-term effects on Russia's economy and geopolitical influence. Investors should closely monitor the developments in Russia's defense spending and consider the potential impacts on the country's economic growth and geopolitical relations.
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