As Russia braces for its traditional New Year’s Eve celebrations, the economic pressures of Vladimir Putin’s prolonged war are becoming increasingly evident. While Christmas on 25 December holds no special significance in the Russian Orthodox or state calendar, New Year’s Eve is a pivotal festive occasion marked by traditional dishes like Salad Olivier, Herring under a Fur Coat, tangerines, and champagne. Yet, the cost of celebrating is rising steeply, leaving households struggling to maintain familiar traditions.
Inflation, officially reported at just under 10 per cent, masks the steeper rises in basic goods. A local newspaper has calculated that the cost of a typical New Year’s Eve dinner has increased by nearly 30 per cent year-on-year. Putin, during his annual press conference, attempted to downplay this crisis, attributing it to increased consumption of staples like meat and dairy. Yet even he was forced to admit that butter prices, for example, have surged by over 33 per cent.
The Kremlin is acutely aware of the political sensitivity of economic hardship. Rising costs have become a dominant theme in public grievances, as reflected in questions posed to Putin at his marathon press conference. Despite official claims of rising incomes, even government data indicates real incomes have dropped by as much as 20 per cent for many. State employees, once a reliable support base for the regime, are among those hit hardest.
Governors have been instructed to prioritise key sectors like dairy, but structural constraints mean solutions are limited. The pressures are symptoms of broader economic challenges, including the government’s prioritisation of defence spending over domestic needs. While the war in Ukraine continues, economic resources are increasingly diverted to sustain military operations, leaving little room for investments in other sectors.
Western sanctions, though not the immediate economic “nuke” some had predicted, are exerting a grinding pressure on Russia’s economy. Labour shortages, reduced industrial capacity, and limited investment capital are compounding the Kremlin’s challenges. Despite a projected GDP growth of 4 per cent in 2024, much of this is attributed to war expenditure and comes at the cost of depleting Russia’s economic resilience. The construction industry, often cited as a success story, is propped up by grim factors such as death benefits paid to families of fallen soldiers and employment opportunities for workers otherwise targeted for military recruitment.
Putin’s understanding of economics has been called into question. His apparent belief that state interventions can override market dynamics has led to tensions with central bank chair Elvira Nabiullina, who has raised interest rates to record levels in an effort to control inflation. Despite her efforts, the spectre of stagflation—a toxic mix of low productivity growth and high inflation—looms large for 2025.
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Defence and security expenditures now consume 40 per cent of government spending, equating to at least 8 per cent of GDP. While the government has allocated sufficient funds to continue the war for another year, growth projections remain bleak, with even optimistic forecasts suggesting no more than 1.5 per cent growth in 2025.
For ordinary Russians, these macroeconomic concerns translate into daily struggles. The surge in prices has led to a proliferation of advice columns on how to host budget-friendly New Year’s celebrations and a rush on lower-cost champagne. Such signs suggest that while Russians may not be poring over economic data, they are acutely aware of the pinch.
As the war drags on, Putin faces increasingly difficult choices between “guns and butter”—between sustaining military efforts and addressing domestic economic pressures. If these hardships persist, they could become a source of discontent, potentially igniting unrest over bread-and-butter issues that political actors might later exploit.
For now, the Kremlin retains both the resources to mitigate unrest and the tools to suppress dissent. But as the economic strain deepens, the question is not if, but when, Putin will face the political consequences of his costly war.
