What the term means
Economists speak of a war economy when fighting a war becomes one of the main purposes of production. The state redirects resources and may become a major customer: it orders weapons, ammunition, vehicles and repairs, pays soldiers, and asks industry to produce more and faster. Labour, machinery and materials are limited, so whatever goes to the war is not available for anything else. Making room can involve taxing, borrowing, creating money, lending through state-controlled banks, fixing prices or telling firms what to make.
The term describes an arrangement, not an outcome. A war economy can grow or shrink, run a surplus or a deficit, have low or high inflation. What defines it is where resources are sent and who decides.
The state as a customer
The Bank of Russia's own statistics treat state demand as a category of its own. Its monitoring of sectoral financial flows sorts industries by who buys what they make, and one of its groups is the industries of state demand, alongside consumer, investment, intermediate and external demand. In its September 2026 bulletin the bank's research department wrote that the expansion of economic activity was continuing thanks to industries oriented to consumer and state demand.
How the state pays also matters. In April 2026 the central bank linked subdued bank lending partly to record-high advance payments of government spending in the first quarter, in its key-rate release of 24 April: money paid in advance is money a contractor does not have to borrow. In the second quarter, the bank's review of the banking sector found that lending growth had accelerated partly because budget spending was lower, as companies raised financing in anticipation of forthcoming payments under state contracts. State purchasing can therefore affect both what firms produce and when they borrow.
Where the budget's own money comes from, through oil and gas revenue, the deficit, borrowing and the reserve fund, is the subject of the guide to how Russia finances the war.
Workers and wages
A war can draw workers into the armed forces and into the plants that supply them, making workers scarcer elsewhere. When the state and its suppliers compete for the same people as everyone else, wages can rise faster than the output each worker produces, and the difference tends to show up in prices.
Rosstat's monthly report put unemployment at 2.3%, not seasonally adjusted, in July 2026, and the average wage in June at 114,743 roubles, 9.6% more than a year earlier and 3.4% more after inflation. In its key-rate release of 11 September the central bank described unemployment as near historic lows, though slightly higher in recent months, and said that tension in the labour market was gradually easing but that the gap between wage growth and productivity growth was still substantial. It counts a long period of wages outpacing productivity among the risks that can raise inflation.
Uneven output
A war economy need not grow evenly. Industries that sell to the state can expand, while other industries may face scarcer labour, tighter credit or weaker markets.
Rosstat's production figures for January to July 2026 show how far apart the branches of manufacturing can move. Output of fabricated metal products, except machinery and equipment, was 10.9% higher than in January–July 2025 and output of other transport equipment 22.9% higher, while machinery and equipment not elsewhere classified fell 4.1%, chemicals 2.7%, paper 8.1%, and coke and oil products 9.2%. The central bank's research department calls those two fast-growing branches the "heaviest" investment industries, and wrote in its September bulletin that budget spending, which had maintained a high pace during the year relative to annual allocations, continued to support their output. Neither Rosstat nor the bank says which of that output is military, and this guide does not assume it.
Controls and ownership
Where prices would otherwise ration scarce goods, war economies can use controls. Fuel is one Russian example: in 2026 the government restricted exports of motor petrol, diesel and other fuels by decree, with exceptions, and the budget pays refiners the damper subsidy for selling fuel at home below export parity. The guide to inflation explains how the damper and other administered prices can keep the index lower than it would otherwise be.
Control also reaches ownership. A decree published on 24 August 2026, No. 604, lets the government, on the president's instruction, place an entity's property under temporary management if its owner fails to protect a critical-infrastructure site, including when measures against drone attacks are ineffective. On 26 August the government set up a standing subcommission on keeping particular sectors of the economy running, under decree No. 1077; one of its three deputy chairs is a deputy chief of the General Staff.
Budget and central bank
When the state spends more than it collects and firms borrow to fill state orders, demand can run ahead of what the economy is able to produce, and the central bank has to decide how hard to lean against it. In 2026 the Bank of Russia said so plainly. Cutting its key rate in April, it warned that higher expenditure accompanied by a growing structural budget deficit would require tighter monetary policy than in its baseline; holding the rate at 14% in September, it said that if the government's new budget projections implied a higher structural primary deficit, tighter policy could be required. In this setting, budget and central-bank decisions can pull in opposite directions. What money growth can and cannot show is covered in the guide to the money supply.
Regions and firms
The federal budget is not the only place the costs land. Regional budgets pay for much of the spending on schools, hospitals and roads, can run deficits and borrow from the federal budget; since August 2026, regions whose estimated fiscal capacity was no higher than 0.9 may put money freed when the federal budget writes off their debts into war spending. The guide to regional budgets covers the mechanics, and the regional budget balance is read below.
Firms can carry another part. When the state or its contractors pay late, suppliers wait, and overdue receivables record the bills that remain unpaid past their due date; Rosstat shows the part owed by state customers for products delivered in a separate column.
Activity is not condition
National accounts count what an economy does, not whether it is better off. Output used up in fighting counts when it is produced. Replacing destroyed capital can be recorded as investment, and the resulting activity can add to measured output.
The central bank's September bulletin shows both sides in one quarter. In the second quarter of 2026 mining fell 1.4% and intermediate manufacturing 3.5% on the previous quarter, seasonally adjusted, because some refineries and export terminals stood idle, while construction rose 5.0%. The bank said the increased need to repair and protect critical infrastructure may support investment demand in the third quarter; it does not say how much of the construction already was repair. The general point holds either way: measured growth can be positive while capacity is being lost, and a busy economy is not by itself a healthy one.
What the term does not tell you
It does not forecast how long an economy can sustain a war. That depends on future decisions, prices and events that the definition itself does not predict.
It does not measure military output. The statistics used here do not separate military from civilian production, and the industries that grow fastest cannot simply be read as weapons factories.
It does not establish causes. When two series move together in a war economy, the war may be the reason, but sanctions, the exchange rate, the harvest or the central bank's own decisions may be too.
And it is not a verdict on welfare. An economy can be fully employed and producing at full stretch while households consume less than they otherwise would.
How The Fuse watches it
The Fuse does not measure the war economy as a whole. It asks a narrower question, how much harder it is for Russia to pay for the war than before it started, and answers it with eight indicators anchored to their pre-war levels, all shown together on the War Economy page. Three of them reach past the federal budget into the system this guide describes: consumer prices, the overdue bills owed to firms and the regional budget balance. Their latest readings follow; the explanation above holds whatever they show.