Russian economy contracts for the first time in three years as sanctions and war fatigue bite

Russia's federal statistics agency Rosstat reported that the economy contracted on a year-on-year basis in the first quarter of 2026 — the first such decline since 2023, when the early shocks from the war in Ukraine were absorbed. The data reflect both a drop in earnings from crude exports and the cooling effect of very high domestic interest rates on consumption and investment.

The Central Bank's hawkish stance is intended to anchor prices, but it is also acting as a brake on housing and capital spending. At the same time the war economy continues to pull soldiers and industrial workers out of civilian sectors, pushing labour costs higher. Pipeline gas sales to Europe remain at historically low levels, removing what used to be a stable revenue floor.

In a separate statement, President Vladimir Putin said the measures taken to support the economy were working. Independent economists, however, see the period ahead remaining difficult: even with elevated global oil prices, discounted quotas and higher shipping and insurance costs are eating into Russian exporters' margins. The 2026 budget direction signals further increases in defence spending and a more cautious posture on social outlays.