Putin Seeks Corrective Steps As Russia's GDP Shrinks 1.8% Amid Ukraine War

Russian President Vladimir Putin has publicly voiced concern over the country's economic slowdown, calling on top officials to explain the decline and propose corrective measures.

Speaking during a televised meeting on economic performance, Putin said key indicators were falling short of expectations and demanded a detailed assessment of the situation, reported Fortune.

He revealed that Russia's GDP contracted by a combined 1.8% in January and February, with sectors such as manufacturing, industrial production and construction showing negative growth.

“I expect to hear detailed reports today on the current economic situation and why the trajectory of macroeconomic indicators is currently below expectations. Moreover, below the expectations of not only experts and analysts, but also the forecasts of the government itself and the central bank of Russia," Putin was quoted as saying by Bloomberg.

The Wednesday meeting was attended by senior government and financial officials, including Prime Minister Mikhail Mishustin, Kremlin Deputy Chief of Staff Maxim Oreshkin, First Deputy Prime Minister Denis Manturov, Deputy Prime Minister Alexander Novak, Central Bank Governor Elvira Nabiullina, and ​the CEO of PSB ​bank.

Russia's economy has been under strain due to the prolonged war with Ukraine, which has kept inflation elevated and tightened the labour market.

The latest remarks mark a shift in tone from Putin, who had earlier described the slowdown as a controlled transition following years of growth driven by heavy wartime spending. 

Despite the Bank of Russia cutting its key interest rate to 15% from 21%, the impact of high borrowing costs continues to weigh on both businesses and consumers.

The concerns come after senior officials flagged economic risks during a key forum in St. Petersburg in June, prompting the president to stress that a recession must be avoided at all costs.

Heavy defence spending had earlier driven strong economic growth, with GDP rising by 4.1% in 2023 and 4.9% in 2024. However, declining oil revenues and widening fiscal deficits have since forced Moscow to scale back military expenditure.

As a result, growth slowed sharply to just 1% last year, with the Kremlin previously projecting 1.3% growth for the current year.

Meanwhile, fiscal pressures have intensified, with the Kremlin's budget deficit widening to about $58.6 billion in the first quarter. This comes as oil tax revenues in March fell sharply compared to the previous year.

While rising global oil prices, driven by tensions involving Iran, and the easing of sanctions by the US have created the potential for increased earnings, Russia has struggled to fully benefit. 

Continued drone strikes by Ukraine on key export hubs have disrupted operations, limiting Moscow's ability to capitalise on higher energy prices.

Following Putin's criticism of officials, the Bank of Russia chief noted that the country's unemployment rate remained at a historic low of around 2 percent, largely due to labour shortages caused by the ongoing war, which has forced employers to compete for workers.