Russian President Vladimir Putin made public his concerns about the economy as he expressed frustration at allies and demanded they come up with solutions.
During a televised meeting on the economy on Wednesday, he revealed that gross domestic product (GDP) shrank by 1.8 percent in January and February and said manufacturing, industrial production and construction were negative.
“I would like to hear detailed reports on the current economic situation and why the projection of macroeconomic indicators is currently below expectations,” Putin said. “Furthermore, the forecasts not only of experts and analysts, but also of the government itself and the Central Bank of Russia are low.”
The meeting was attended by Prime Minister Mikhail Mishustin, Deputy Chief of Staff of the Kremlin Maxim Oreshkin, First Deputy Prime Minister Denis Manturov, Deputy Prime Minister Alexander Novak, Central Bank Governor Elvira Nabiullina and CEO of PSB Bank.
Russia’s economy was already slowing as Putin’s war in Ukraine kept inflation high and the labor market tight.
The economic contraction would be the first since 2022, when Russia invaded Ukraine and was hit by Western sanctions that cut energy exports.
Larger military spending helped expand GDP by 4.1% in 2023 and 4.9% in 2024. But weak oil revenues and deep deficits have forced Moscow to limit defense spending. GDP grew by just 1% last year, and the Kremlin had forecast 1.3% growth this year.
Meanwhile, the Kremlin’s budget deficit rose to $58.6 billion in the first quarter as oil tax revenue fell by half in March from a year earlier.
To be sure, the Iran war has driven up oil prices, and the Trump administration has lifted sanctions on Russian oil, setting Moscow up for a revenue windfall. But Ukraine’s relentless drone attacks on Russian export hubs have prevented Russia from taking full advantage of its opportunity.
After Putin scolded his allies on Wednesday, the central bank chief said on Thursday that Russia’s unemployment rate remained at a historic low of 2% as the war created a shortage of available workers, forcing employers to compete for staff.
“The current situation is characterized by the fact that for the first time in modern history our economy faces a labor shortage or limitation,” Nabiulina added. “This is the new reality for governments and businesses. In the past, high-rate cycles were tied to temporary external shocks, and once things stabilized, we cut rates quickly. But, now, we face a persistent slowdown in external conditions affecting both exports and imports.”
