Russia still holds out, but the cracks are becoming more visible: Significantly, cookie consumption is on the rise

Russia continues to endure the war against Ukraine, but cracks in its economy are becoming increasingly visible. A telling sign of these underlying issues is the rising consumption of affordable goods such as cookies, which reflects shifting consumer behavior amid economic strain. Four and a half years into the conflict, Russia’s economy has become sharply divided into two worlds: the military sector, still heavily subsidized by the state, and the civilian part, grappling with inflation, high interest rates, and declining demand. According to Alex Kolyandr of the Eurasia Group, the situation can be summarized as follows: “If you work in a company producing tanks, things are probably going well for you. Otherwise, it's very likely you're facing problems.” On the surface, Russia’s economy appears resilient. Official data shows GDP growth of 1.3 percent in the second quarter of the year, surpassing both government and central bank expectations. For the first half of the year, the growth rate was 0.6 percent. However, beneath these figures lies growing dependence on military spending, subsidized loans, higher taxes, and energy revenues. The defense industry keeps the economy afloat, with factories producing weapons, ammunition, and military equipment operating at full capacity. Meanwhile, many civilian sectors face rising costs and weaker demand. Additional pressure comes from Ukrainian drone attacks targeting Russian refineries, storage facilities, and logistics infrastructure. Charles Lichfield of the Atlantic Council’s GeoEconomics Center highlights two key indicators for understanding Russia’s true economic condition: the budget deficit and inflation. According to him, Russia is on track to double its deficit this year compared to 2025, which itself was twice as large as the previous year. Revenue from oil and gas has fallen to just 64 percent of the level recorded in the same period two years ago. The Kremlin managed to bring inflation down to around four percent last year, close to its target, but analysts warn this success might be temporary. War-related expenses, labor shortages, high interest rates, and increased government spending are creating new inflationary pressures. An interesting indicator of changing consumer habits emerged from X5 Group, Russia’s largest retail chain. The company reported earlier this year that consumers are increasingly choosing cheaper products and store-brand items. Notably, cookie consumption has risen significantly, becoming a more affordable alternative to expensive chocolate and other sweets for some segments of the population. Despite these challenges, the Russian government still has several options to mitigate the crisis. It could impose additional taxes on oil and gas companies, attempt further borrowing, or tap into foreign exchange reserves not frozen by Western sanctions. Approximately $300 billion of Russian reserves are frozen abroad, while Moscow is estimated to have a similar amount domestically or in countries that have not imposed sanctions. However, using these reserves to cover budget gaps could undermine confidence in the Central Bank’s ability to control inflation. Despite growing economic difficulties, analysts do not expect the financial pressure alone to compel the Kremlin to end the war. Elina Ribakova of the Peterson Institute for International Economics believes the situation would need to become significantly worse, such as a prolonged drop in oil prices to $35 or $40 per barrel, for the government to reconsider its stance. Current high energy prices provide Russia with some flexibility to continue the war. Similarly, Kolyandr warns that worsening economic conditions could have the opposite effect, prompting Vladimir Putin to intensify military pressure before financial problems become more severe. He notes that the Kremlin can temporarily mask problems through accounting maneuvers, but fundamental weaknesses will persist. Russia’s economy does not yet show signs of collapse, but it increasingly depends on a war that simultaneously sustains and gradually depletes it.