Comparative Analysis of the Economies of Russia and the EU in the context of the Russian-Ukrainian war

Russia refuses to stop the war against Ukraine, relying on its resource superiority over Europe, which is the main donor of our country;

at the same time, a comparative analysis of the Russian and European economies shows that Russia will not win in the resource confrontation with Europe;

in such a situation, the introduction of new sanctions by the United States and the EU against the Putin regime could completely undermine the Russian economy, which would significantly affect Russia’s military capabilities;

however, this would not mean that Russia would immediately stop military operations. It would be able to continue them for some time, albeit at a lower level.

Despite the negative consequences of Western sanctions that undermine the Russian economy, Moscow continues to defiantly ignore US President D. Trump’s demands to end the war against Ukraine. And V. Putin’s representatives repeat traditional narratives about “Russia’s insensitivity to sanctions because it is already immune to them”.  Obviously, Moscow is counting on its allegedly powerful economic potential to win the so-called war of resources. At this, it hopes that problems in Europe’s economy will limit its ability to help Ukraine. Therefore, Ukraine will be forced to capitulate even without a large-scale breakthrough of the front line by Russian troops.

Such hopes of Putin’s are rather strange in nature. Especially against the background of the fact that even members of his government recognize the fact that the Russian economy is approaching a deep crisis. But then, expectations not always come true. Especially since the European economy is not only not inferior to Russia’s, but exceeds it both in terms of volume and quality of work. But then, let’s compare the dynamics of development and existing problems of the two economies.

Table. Key indicators of the Russian and European economies since the beginning of Russia’s war against Ukraine. The indicators presented in the table are indicative in nature, especially with regard to Russia, which deliberately distorts its economic performance in order to conceal its real state. At the same time, they make it possible to assess at least the existing trends.

As can be seen in the table, in 2021, the last year before the war, Russia and the European Union had positive development dynamics. Moreover, the EU’s GDP growth rate was 1.9 times higher than that of Russia, while  the inflation rate was 3.4 times lower. Those results were the result of more effective actions taken by the EU and European leaders to overcome the crisis caused by the COVID-19 epidemic.

After Russia’s full-scale attack on Ukraine, the situation changed completely. The first year of the war saw a significant deterioration in the economic situation in both Russia and the EU. Thus, by the end of 2022, Russia’s GDP decreased by 1.2 % (according to independent estimates, by 7-8 %), while  inflation increased 1.4 times to 11.9 % (according to other sources, to 30 %). In the EU, only GDP growth declined, but quite significantly – it almost halved. And inflation increased 4 times to 10 %. First of all, the reasons for this were:

For Russia – imposition of tough sanctions against the RF  by the United States and the European Union, which led to significant negative consequences for its economy. The main ones were the decline in trade between Russia and the EU, which was one of its largest economic partners, the reduction in Russian energy exports due to Europe’s partial refusal to buy them, and the withdrawal of Western companies from the country. In addition, due to the failure of the Russian blitzkrieg in Ukraine and the continuation of the war, Moscow was forced to increase military spending beyond the planned level. This has limited the Russian government’s ability to support the economy and ensure its development. At the same time, as a result of mobilization, the need to constantly replenish losses at the front, and the flight of a large number of people from the country, there was a shortage of labor. Still, at that time, Russia could compensate for its financial expenses from the reserve funds that remained under its control. Moscow also benefited from the temporary rise in world oil prices that began with the outbreak of the war as a market reaction to it;

For the EU – deterioration of the European economy’s operating conditions as a result of unfavorable conditions on the global energy market. For example, the increase in energy prices has led to an increase in the cost of all goods and services. In particular, the cost of food alone increased by 10 %. And Europe’s dependence on Russian oil and gas did not allow it to achieve discounts by maneuvering between different suppliers.

The EU economy was negatively affected by the reduction of trade and economic cooperation between Europe and Russia as part of its own and the US sanctions. At the same time, the revenues of European companies that have ceased cooperation with Russia have decreased. However, Europe took such steps to deter Russia, as the latter’s  aggressive policy posed a real threat to Europe’s interests.

In 2023, Russia’s economic situation formally improved. Thus, the country’s GDP grew by 3.3 %, while inflation decreased 1.6 times. Nevertheless, it remained at a fairly high level of 7.4 %. Europe demonstrated more ambiguous dynamics. EU GDP growth declined by 4.5 %. However, inflation decreased 1.5 times to 6.5 %. As before, all this was due to the war. The main aspects of the impact on the economy of the parties include:

For Russia – increase in military production, which was the main contribution to formal GDP growth. Besides, Russia has partially adapted to Western sanctions by reorienting its trade and economic ties from Europe to China. In addition, the EU countries continued to buy oil and gas from Russia, spending more money on this than on assistance to Ukraine;

For Europe – persistence of high energy prices, as well as a further decline in European-Russian trade, which it could not quickly compensate for. Thus, between 2021 and 2023, trade between the European Union and Russia decreased 5 times, from EUR 257.5 billion to  EUR 50.8 billion.

To restore the positive dynamics in the European economy, the EU leadership has taken a set of financial and economic measures, including some rather tough ones. For example, the European Central Bank (ECB) raised key interest rates on loans to 4 %, which was one of the highest levels in the EU’s history. The European Union also limited its spending and demanded that its members introduce stricter budgetary savings regimes. And the EU countries themselves have stepped up their efforts to find new partners to replace Russia.

In 2024, these trends began to transform. Russia’s GDP growth actually stopped, and inflation increased 1.2 times to 9.5 % (according to non-governmental estimates, it rose to at least 30-40 %). The EU’s GDP grew 1.3 times, while inflation almost halved – to 3.3 %. These changes were mainly caused by the following factors:

For Russia – the exhaustion of the potential for further GDP growth through arms production. The capacities of military enterprises have reached the peak of their capabilities. The negative impact of rising military spending has also intensified, leading to an increase in the state budget deficit and forcing the government to increase the issuance of unsecured money.

In an attempt to curb inflation, the Central Bank of Russia raised lending rates to over 20   %. However, this step only worsened the business environment in the country;

For the EU – positive results of the activities of the EU leadership and member states, which made it possible to significantly expand trade and economic cooperation with China and the countries of Latin America and Southeast Asia. The shock effect of rising global energy prices has also diminished.

In 2025, the performance of the Russian and EU economies continued to change. From January-February this year, the GDP growth rate in Russia began to decline sharply, and in May-June this year, the Russian economy actually entered stagnation. According to government experts, this year’s GDP growth may decrease 2.7 times compared to last year – to 1.2 %. However, inflation will also decline by about the same amount to 3.8 %. Independent analysts give more pessimistic forecasts. In their opinion, by the end of 2025, the Russian economy may enter recession, while inflation will only increase.

Unlike the Russian Federation, in 2025, the European economy is expected to continue to grow gradually, increasing 1.4 times to 1.1 %, while inflation will decrease 1.5 times to 2.2 %. All of this is the result of the intensification of the factors that emerged last year, as well as a number of additional factors. In this regard, the most important are:

For Russia – the decline in state budget revenues due to the decline in global oil prices. As a result, its deficit has grown even more, and with it – the issuance of unsecured funds, which increases inflation.

Against this background, the Central Bank of the RF’s ultra-high interest rate has created critical problems for most sectors of the Russian economy. And the European Union’s consistent increase in sanctions against Russia has caused a crisis in the coal, metallurgical, automotive, construction, and other sectors of the Russian economy, as well as in agriculture and transportation. Russian oil exports are also decreasing, including bypassing Western sanctions;

For Europe – the aforementioned fact of falling global energy prices. This has created more favorable conditions for the European economy. Besides, the positive effect of the EU leadership’s successful economic policy is increasing. In particular, as a result of the decline in inflation and the settlement of trade disputes between the EU and the USA, the ECB managed to start the process of reducing interest rates.

In other words, the Russian economy is losing out to the European economy, which demonstrates greater efficiency and the ability to eliminate existing problems. Therefore, their performance is currently completely opposite in terms of dynamics. While Russia is plunging into an economic crisis, Europe is recovering its economic condition. At this, Russia is inferior to the European Union in terms of absolute economic performance. For example, in 2024, Russia’s GDP amounted to $2.2 trillion, while the EU’s was $19.4 trillion. Even taking into account the so-called price parity factor, Russia cannot in any way compare with Europe.

Of course, Russia is supported by China, which keeps its economy running. Without such assistance, it would simply stop. But China is openly profiting from Russia and is in no way contributing to the real elimination of its economic problems. Not only does Beijing not give Russia loans and credits to cover its financial needs, but it has actually stopped investing in the Russian economy. Europe, on the other hand, has a powerful and reliable ally – the United States, which will always come to its aid, even despite certain contradictions.

The gap between Russia and Europe will become even wider after the US imposes new sanctions on the Putin regime and its partners, which may happen in the near future. There are many assessments on this issue, so it is not worth repeating them. Let me just remind you of the experts’ conclusion that Russia will lose at least a third of its revenues, which will finally undermine its economy and thus its ability to continue the war against Ukraine at the current level.

And according to the EU’s decision, by 2027, Europe intends to completely give up Russian oil and gas. These plans are supported by the EU–US trade agreement, under which Europe has pledged to purchase 750 billion dollars worth of energy carriers from America. On the one hand, this will finally eliminate Europe’s energy dependence on Russia, and on the other hand, Russia will lose another source of income.

We should also not forget about Ukraine, which has been systematically attacking Russia’s oil and transportation infrastructure and its military enterprises. Individually, they may not be of strategic importance, but collectively they cause significant losses to the enemy and destroy its economy.

So, Russia will not be able to win a resource war with Europe, and thus stop or reduce its assistance to Ukraine. Moreover, the US and EU sanctions could deal a significant blow to the Russian economy in the near future.

However, this does not mean that Russia will fall now and stop the war against Ukraine. It can find internal reserves by putting its economy into an emergency mode of operation, similar to the one it used during World War II. However, such actions would only prolong its agony.

Yurii Ilchenko,
Institute of Global Politics

(Image generated by neural network)