Russia’s war-driven economy is facing serious pressure from sanctions and falling income. In the Nizhny Novgorod region, a major center for defense and car manufacturing, businesses are struggling.
Local industrial groups say the situation is causing “serious concern” and have asked the government for urgent help, according to Bloomberg on February 27.
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Investment and production have dropped sharply over the past year. Large state companies like Rostec and Roscosmos are not paying their bills on time. This has left local businesses with over $1.3 billion in unpaid invoices. To stay open, many firms are taking out loans with interest rates higher than 20%.
The financial crisis could lead to 20,000 job losses in the region by the end of the year. Some major companies have already started cutting working hours to save money. This is a big change from last year when the region had almost no unemployment.
While the Kremlin is spending heavily on Russia’s full-scale invasion of Ukraine, many regions are facing growing budget gaps. Nizhny Novgorod expects a deficit of $387.6 million this year.
“We have had to turn down ministries on spending that is genuinely important but not an immediate priority,” said Regional Governor Gleb Nikitin.
Sanctions have also hurt the region’s car industry. GAZ Group, which once worked with European brands, saw sales fall by 33% last year.
While some factories making military equipment for the invasion are still busy, most civilian businesses report that profits have dropped by half and new orders have stopped.
Earlier, David O’Sullivan, the European Union’s special envoy for sanctions, acknowledged that while restrictions were not a “silver bullet,” they had exerted a significant impact on Russia’s economy. He noted that by early 2026, the building up of a war economy at the expense of the civil sector had made the entire system increasingly unsustainable.
Despite Russia’s efforts to maintain its military campaign, oil revenues had fallen sharply, inflation had hovered near 6%, and interest rates had climbed to approximately 16%.
O’Sullivan also highlighted that the EU had successfully targeted Russia’s shadow fleet and tightened controls on sensitive components found in weapons systems, leading to a critical state for the Russian economy as it faced the pressure of the full-scale invasion.
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