The prolonged invasion has started to significantly impact the Russian economy negatively.

According to Bloomberg, Russia’s overheated economy may begin to cool, based on Russian government statistics. While Russia’s GDP jumped more than 4% year-on-year in the second quarter, growth will slow to half that level for the rest of the year and fall to 0.5%-1.5% next year.

Since the start of the war, the Russian government has massively increased spending on the military and defense industry, and efforts to soften the impact of sanctions on businesses has led to an overheating of the economy. Moreover, Russian businesses currently lack more than two million workers, although the unemployment rate has fallen to a historic low of 2.4%.

At the same time, the Russian military industry has reached the ceiling of growth. Civil industries are unlikely to be able to compensate for the military sector. June’s growth in the manufacturing industry was 50% lower than in May. Wholesale trade slowed to less than 2% after reaching double digits in previous months.

In July, the central bank raised the key interest rate by 200 basis points, the largest increase since the beginning of the war, to 18% to counter the risk of stagflation.