By Olha Hembik | 2026-05-20

Russia's economy is cracking under the weight of its own war. In the first quarter of 2026, gross domestic product (GDP) shrank 0.3% year-on-year -- the country's first quarterly contraction since early 2023. The slump wiped out a third of the growth Russia recorded in all of last year.

President Vladimir Putin acknowledged it himself.

"Economic dynamics are, unfortunately, slowing," he said at an April 15 meeting on economic policy, noting the decline had persisted for two consecutive months. He blamed calendar quirks -- January had two fewer working days than usual, February one fewer -- along with weather and seasonal factors.

Analysts aren't buying it.

"Putin's hysterics during the meeting with the economic bloc suggest that even the preliminary results for March offer no hope that the country will 'skate by' or that things will simply 'resolve themselves,'" Belarusian opposition figure and businessman Alexander Knyrovich wrote on his Facebook page.

Recession hits every sector

GDP contracted 1.8% in both January and February. A 1.8% rebound in March failed to offset the losses. The Russian Ministry of Economic Development's own data confirm the damage.

Janis Kluge, an expert at the German Institute for International and Security Affairs (SWP), said the slowdown has now hit every single sector, according to The Moscow Times. For the first time since the start of the full-scale war, the non-resource manufacturing sector has slipped into recession. Garment manufacturing collapsed 13.9%. Metallurgical output dropped 10.1%. Food production fell 0.2% -- its second consecutive year in the red.

The military-industrial complex is struggling too. Production of finished metal products, the category covering shells and bombs, fell 0.8% in the first quarter. Ukrainian strikes on Russian refineries drove a 0.5% contraction in refined product output.

Thomas Nilsson, head of Swedish military intelligence, told the Financial Times the situation is worse than official figures show. Russia's Central Bank puts inflation at 5.86%, but Nilsson's agency believes the true figure is closer to the country's 15% key interest rate. Swedish analysts are tracking financial indicators that could point to a banking crisis. His agency, alongside Germany's Federal Intelligence Service (BND), has also concluded that Moscow is underreporting its budget deficit by $30 billion.

The cost of five years of war

Experts link the deterioration directly to the war and to Western sanctions.

"Sanctions have a cumulative effect; furthermore, the majority of Russian assets are currently frozen abroad. These $300 billion in foreign exchange reserves are already functioning as reparations, generating income for the European economy. Russia is essentially funding a portion of Europe's and Ukraine's rearmament while receiving nothing in return," Mikhail Strelnikov, a lawyer and founder of the Museum of Victory over Despotism in Poland, told Kontur.

"Russia's defense spending stood at approximately $60 billion before the war; now, it exceeds $180 billion, with no end in sight," Knyrovich said.

He added that even a truce would change little -- the military lobby would continue drawing from the budget for years, under the banner of restocking arsenals.

Human capital losses compound the damage. Medical technology expert Evgeny Neyshtetik estimates that Russia has lost roughly 1.5 million people killed or wounded since the start of the war, with another 1.3 million having left the country permanently. He said the number of employed people has fallen from 84.7 million before the war to 74.6 million.

"It's a bottomless pit," he wrote on Facebook.

Ihor Burakovsky, chairman of the board at the Institute for Economic Research and Policy Consulting (IERPC), told Kontur that a ceasefire alone would not pull Russia out of its crisis. The country needs structural reforms that have been delayed for years -- politically and economically -- to protect revenues from oil and gas. Without access to global markets, technology and investment, Russian companies have little path forward.

What comes after

In a worst-case scenario -- the collapse of the Russian Federation -- its resource wealth would become a target of competition among global powers, Yaroslav Zhalilo, an economist and deputy director of Ukraine's National Institute for Strategic Studies (NISS), told Kontur.

Energy and food markets would face immediate disruption. Russia remains a major supplier of natural gas and grain, and a sudden halt in those supplies would force a global search for alternatives. Ukraine could step into the grain supplier role, according to Zhalilo.

Any post-war reconstruction would require something on the scale of the Marshall Plan: targeted programs to rebuild the economy and create the foundation for a stable society.

"Ukraine could play an active role in this reset," Zhalilo said.