Economy under Putin: And the Russian economy is slowly dying

A silver icon of St. George, honey from the occupied Crimea and expensive wine that is otherwise only served in the Kremlin - small businessman Denis Maximov received all of these as a gift from Vladimir Putin. He became known because he complained to Putin about his suffering over the tax reform announced at the turn of the year on December 19, 2025: at Putin's annual press conference, broadcast live on TV, with questions from citizens, where Putin presented himself as a caring father of the country. Instead of tax breaks, he gave the gifts mentioned above.

The appearance made Maximow and his Mashenka bakery suddenly famous in the Moscow area. People stormed the store wanting to try the pierogies that Maximov had sent to Putin. The 49-year-old founded the business with his wife Irina in 2017 after two decades in the banking business. But the rush only lasted a short time. The feared tax increases came - and two weeks ago Mashenka was liquidated in the Russian company register.

Maximov is just the most prominent case of a wave of bankruptcies sweeping Russia. 467,000 companies were closed in the first five months of this year alone, including many self-employed companies. Online retail in particular is affected: up to and including May - newer figures have not yet been published - 53,672 companies in the e-commerce sector had to give up.

The effects of the Ukrainian drone attacks on the logistics centers of the online retail giants Wildberries and Ozon since July are not even included. The Association of Internet Trade in Russia says 400,000 people were injured as a result of the destruction of two dozen of the huge transshipment centers that lost goods stored for shipping worth up to 800 billion rubles (8.3 billion euros).

While the fortune of Wildberries majority owner Tatjana Kim is said to have fallen by $2.1 billion to $5 billion, according to the Russian edition of the business magazine Forbes, small business owners are complaining about total losses due to the fires. Ozon and Wildberries do not sell goods for their own account, but for other companies. In order to better protect warehouses from Ukrainian drones in the future, Russia's largest retailer has now purchased 478,000 square meters of wire netting to span the buildings and heat-resistant panels to protect against fire.

This no longer benefits the tens of thousands of small businesses that lost their existence before the major fires. They mostly had to give up because of sales commissions that had increased by up to 63 percent as well as growing costs for storage, shipping and payment processing. "The costs rose so much that in the end there was nothing left for me. And in my small Siberian town I don't have enough customers to survive," says tailor Sergei, who does not want to give his last name. Wildberries also paid suppliers very slowly, which resulted in high costs for bridging loans. “I had to give up and get a job as a bus driver.”

Svetlana Iokar's case hit the Russian press last week when she closed her tour operator Fantasy Way, which specialized in domestic tourism. Demand has “collapsed catastrophically”. This is also confirmed by the Russian Travel Agents Association, which has recorded a decline in domestic trips by up to a fifth. On the occupied Ukrainian peninsula of Crimea, bookings have even fallen by almost two thirds.

There are many reasons for Russians' growing reluctance to vacation in their own country: shrinking purchasing power, the gasoline crisis following the Ukrainian attacks on Russian refineries, airport closures disguised as "logistical problems" and flight cancellations due to drone attacks.

Iokar cited the debt burden that she could no longer bear as the main reason for closing the business. To pre-finance travel groups, she needed bank loans, which are difficult to service given the central bank's key interest rate of 14 percent. Companies do not pay 14 percent, but at least 20 percent interest at banks.

Even German Gref, head of the largest Russian bank, the state-owned Sber, is urgently calling for a key interest rate cut, otherwise there would be a “wave of insolvencies and bankruptcies”. According to the Central Bank, a quarter of the 709,600 loans from Russian companies and self-employed people are already experiencing repayment delays amounting to 120 billion euros. That is 11.8 percent of all corporate loans from banks.

She “tried to save the company by all means until the last moment,” says Iokar. It was her life's work: The travel company had existed since 1998 and even survived the “catastrophe of the Corona crisis”. Iokar is not alone with her problem: 2,700 travel agencies and operators were closed in the first half of the year, an increase of 52.3 percent.

Maximov, who had mutated from a banker to a baker, had also tried everything until the end. But the tax reform that began at the beginning of the year left the oven cold. The flat-rate small business tax can only be applied to those who have an annual turnover of up to the equivalent of 62,500 euros (instead of the previous up to 208,000 euros). In addition, the VAT was increased from 20 to 22 percent. The income tax was changed from the former 13 percent flat tax to a progressive tax of up to 30 percent.

Tens of thousands of founders and owners of transport companies, restaurants, shops and construction companies are also affected by the removal of tax privileges. In the construction industry, it's no longer just the little ones who are affected. Russia's largest real estate developer Samoljot is also wobbling: the company, with 4.4 million square meters of living space under construction and 40 million square meters of building land, cannot service its billions in loans.

The middle class also suffers from the “more frugal” behavior of the population as identified by the central bank. 39 percent of income now goes on food. Food inflation is now called the “Borscht Index”. He measures the price increases of the vegetables needed for beetroot soup: cabbage is 38 percent more expensive, beetroot, potatoes and onions are 30 to 32 percent more expensive than a year ago.

Putin recently announced a “new investment cycle” at the economic forum in Vladivostok. But the opposite is the case: investments have been declining for five quarters. In the first half of the year they fell by 10 percent. However, without investments in fixed capital, expansion and modernization of production and thus growth are not possible, warns Sofja Donets, chief economist at the investment bank T-Investizii. She sees the highest risk of recession in five years.

This text first appeared in wochentaz, our weekly newspaper from the left!

Every week, wochentaz is about the world as it is – and as it could be. A left-wing weekly newspaper with a voice, attitude and the special taz view of the world. New every Saturday at the kiosk and of course by subscription.

Economic analyst Sergei Schelin, who fled to Finland, says that “Putinomika” was once known for its stability. Now the war and its expenses have “made them fragile”. And for the first time in Russia there are more company liquidations than new ones.