Russia’s economy has entered a phase of contraction for the first time since March 2023, with a 2.1% year-on-year drop in GDP for January, compared to the same month in 2025, The Moscow Times reported on March 5, citing Russia’s Ministry of Economic Development.
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The Ministry attributes the downturn to several factors, including a two-day reduction in the working month and extreme cold weather, which had a notable impact on industrial output. Specifically, the construction sector saw a sharp 16% contraction, a stark contrast to the previous year when it grew by 6%, thanks to an unusually warm January.
However, economists caution that even when accounting for these external factors, Russia’s economy appears to be stagnating rather than growing. Underlying economic activity has slowed down across most major sectors.
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One of the primary drivers of the economic downturn is a significant weakening of consumer demand. In 2025, consumption accounted for 51.1% of Russia’s GDP, but early data for 2026 suggests that demand is faltering. This stagnation comes on the back of a VAT hike, which has added pressure to household finances.
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Business Confidence in Russia also decreased to 0.40 points in February from 0.70 points in January of 2026, according to the Russia's Federal State Statistics Service.
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In addition to other comments: Russia is definitely an energy exporting country, but Russian oil is sold at a discount mainly due to the Western sanctions over the war in Ukraine. This includes a price cap introduced by European Union that has been lowering the price to $44.10 per barrel since February 1. When the price for crude increased this weak to more than $80, Russia didn't benefit.
A calculation by Reuters also suggests that the situation will further strain Russia's budget: