In 2021, the Russian aerospace and defense market saw a 4.5% decline in value, but this was a slightly better performance than in 2020. The market is predicted to continue declining due to a deteriorating macroeconomic outlook during the forecast period (2021-2026).

As a response to financial pressures caused by the COVID-19 pandemic, defense spending in Russia was reduced in 2021, resulting in a decrease in the volume and value of new deals signed that year.

The Russian aerospace and defense market had total revenues of $34.9 billion in 2021, with a compound annual growth rate (CAGR) of 6.7% between 2016 and 2021.  

The level of defense spending as a share of Russia’s GDP is relatively high, estimated at 2.18%. In absolute terms, the country’s defense spending is $242.5 per capita. Russia is one of the largest defense spenders globally and has been modernizing its armed forces since 2011, although it slipped out of the global top five defense spenders in 2018 due to the economic slowdown.

The Russian Federation faces both internal and external threats. The country feels increasingly threatened by the U.S. and Western-based institutions such as NATO, leading to polarizing differences. Unresolved conflicts in the near abroad also pose security risks for Russia.

The most lucrative segment in the Russian aerospace and defense market in 2021 was systems and ordnance, contributing to 54.3% of the market’s overall value. The military aircraft segment was the second-largest contributor, with revenues of $7.9 billion, equating to 22.7% of the market’s aggregate value. However, the market is forecast to decline, with an anticipated compound annual rate of change (CARC) of -1.4% for the 2021-2026 period, resulting in a value of $32.5 billion by the end of 2026.

Defense spending in Russia is expected to decline during the forecast period, with a higher fiscal deficit projected until 2026. This trend, combined with rising inflation, is expected to put the country’s defense budget under pressure. However, Russia is likely to increase defense spending in 2022 to replace depleted resources and destroyed infrastructure from its military engagement in Ukraine.

Russia is investing heavily in emerging technologies such as hypersonic missiles, which will allow it to compete with China and the U.S. The country’s Ministry of Defense plans to replace its Su-24 fleet with Su-30SM fighters, with around 186 units to be procured by 2027. Other notable projects include the $12.2 billion PAK DA program by Tupolev.

The increasing prevalence of cyber-related threats is leading to a shift in defense spending from traditional weapons in vehicles, naval, and aircraft segments to more technologically advanced weapons of electronic warfare in systems and ordnance.