Putin finally admits Russia’s economy is in trouble and grasps for answers, after warnings about a financial crisis have been piling up
Russian President Vladimir Putin expressed his disappointment with his aides, publicly expressed his concerns about the economy and demanded that they find solutions.
At a televised meeting on the economy on Wednesday, he announced that GDP contracted a combined 1.8% in January and February, adding that manufacturing, industrial production and construction were negative.
“Today I expect to hear detailed reports on the current economic situation and why the course of macroeconomic indicators is below expectations,” Putin said. “Moreover, it is below the forecasts of not only experts and analysts, but also the government and the Russian central bank.”
Prime Minister Mikhail Mishustin, Kremlin Deputy Chief of Staff Maxim Oreshkin, First Deputy Prime Minister Denis Manturov, Deputy Prime Minister Alexander Novak, Central Bank Director Elvira Nabiullina and PSB Bank CEO attended the meeting.
Russia’s economy was already slowing as Putin’s war against Ukraine continued to keep inflation high and the labor market tight.
The economic contraction will be the first since 2022, when Russia invaded Ukraine and was affected by Western sanctions that cut energy exports.
Massive military spending helped GDP grow by 4.1% in 2023 and 4.9% in 2024. But weak oil revenues and deeper budget deficits have forced Moscow to limit defense spending. GDP grew by just 1% last year, and the Kremlin had previously predicted 1.3% growth this year.
Meanwhile, the Kremlin’s budget deficit rose to $58.6 billion in the first quarter; because oil tax revenue fell by half in March compared to the previous year.
Of course, the Iran war caused oil prices to rise, and the Trump administration lifted sanctions on Russian oil, providing Moscow with a windfall. However Ukraine’s continuous drone attacks Interest in Russian export centers prevented Russia from taking full advantage of this opportunity.
Russia’s unemployment rate remains at a historic low of 2% as the war creates a shortage of available workers and forces employers to compete for staff, the central bank governor said Thursday after Putin scolded his aides on Wednesday.
“The peculiarity of the current situation is that for the first time in modern history our economy is facing labor shortages or limitations,” Nabiullina added. “This is a new reality for both government and business. In the past, high interest rate cycles were tied to temporary external shocks, and once things stabilized we cut rates fairly quickly. But now we face a permanent downturn in external conditions affecting both exports and imports.”
