Russian Small Businesses Struggle as State Defense Spending Surges

The Federal Government of Russia has overseen a growing economic divide characterized by a thriving state-dominated defense industry and a struggling civilian sector. Military spending now consumes approximately eight percent of the national GDP, contributing to Russia posting its first quarterly economic decline in three years at the start of 2026.

Small enterprises, particularly in commuter towns and Moscow suburbs like Mytishchi, are grappling with stubborn inflation, a volatile currency, and reduced consumer purchasing power. Pharmacies and salons in these areas are increasingly shutting down as the civilian economy falters.

This economic downturn is exacerbated by state policy decisions to increase taxes. The government has implemented VAT increases and removed simplified low-rate tax systems previously available to small firms. Additionally, tighter regulations on alcohol sales have further squeezed profits for independent business owners.