Russia's GDP drops 1.8% amid trade and industry slump

Russia's economy contracts sharply as trade and industry falter in early 2026

In mid-April, during a government meeting on economic issues, Putin lamented: "Statistics show that, unfortunately, economic growth has declined for two consecutive months. Overall, GDP shrank by 1.8 percent from January to February. The manufacturing sector, industrial production as a whole, and a critically important, systemic sector like construction all recorded losses."

"Yes, experts cite calendar effects, weather conditions, and so-called seasonal factors as reasons for the negative trend," he continued, explaining that fewer working days in January and February were "objective realities," but "it is clear that they are far from the only factors determining economic and investment activity in the country."

Beyond outlining the causes of the decline, Putin demanded that his ministers implement a series of measures to stimulate growth, including proposals to restructure the labor market and support the economy. He highlighted the low unemployment rate of 2.1 percent as a positive factor.

Labor Shortages and Structural Unemployment

What he did not mention was the high level of structural unemployment lurking behind that figure—evident in the rise of short-time work at many companies. This was clarified in April by Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, in remarks to Russian journalists.

While the nationwide unemployment rate stood at a very low 2.1 percent, structural unemployment remained high, Shokhin noted. For example, some Russian companies had introduced a four-day workweek, while others in continuous production faced severe labor shortages.

Elvira Nabiullina, governor of the Central Bank, reinforced this point at the Moscow Exchange Forum on April 16, declaring that labor shortages and budget deficits had become the new reality for Russia's government and economy.

Oil's Mixed Fortunes

The longer the blockade of the Strait of Hormuz persists, the more petrodollars flow into Russia. Every additional dollar in the annual price of Urals crude boosts Russia's tax revenue from the oil and gas sector by roughly 150 billion rubles (around $2 billion), calculated Olga Belenkaya, an analyst at Moscow-based Finam. In April alone, Russia's oil and gas revenues could reach 900 to 950 billion rubles, up from 617 billion rubles in March, she said.

Yet this windfall is offset by Ukrainian drone strikes on Russian oil infrastructure, including ports, pumping stations, and storage facilities. According to Russia's Center for Price Indices, port throughput—after damage in the Baltic and Black Seas—fell from 442,000 million tons per day (about 3.3 million barrels per day) in February to 292,000 million tons per day (roughly 2.2 million barrels) in early April, a drop of over 30 percent.

While daily loading activity later recovered to 355,000 tons (2.6 million barrels per day), the Center for Price Indices still forecasts that Russia's seaborne oil exports will decline to 310,000–360,000 tons per day by the end of the month—the lowest level since 2023. Market participants report falling demand for Russian oil due to attacks on export infrastructure.

Industry sources suggest that, combined with declining exports and unplanned refinery maintenance, production could drop to 300,000–400,000 barrels per day in April, down from 500,000–600,000 barrels per day at the end of 2025. In its April oil market report, the International Energy Agency (IEA) lowered its forecast for Russian oil exports by the end of the year by 120,000 barrels per day, citing attacks on refineries and ports. The IEA estimated Russia's oil production in March at around 9 million barrels per day.

A Boom in Funeral Services

Despite widespread restaurant closures, Kommersant recently reported in April on the surge in small businesses within Russia's funeral industry. According to data from the analytics platform Rusprofile, 524 new funeral service companies were registered in Russia in the first quarter of 2026—a 37.5% increase compared to the same period last year. The total number of active firms in this sector reached 11,300, marking a 5.7% rise year-over-year, the newspaper noted.

The growth in smaller funeral enterprises is attributed to increased transparency due to regulatory oversight and the fragmentation of businesses seeking to circumvent stricter tax laws, Kommersant explained. This year, the revenue threshold for VAT exemption was slashed from 60 million to 20 million rubles.

Dmitry Khazov, director of the Ural Funeral Association, added that many employees in the sector have also chosen to go independent. He observed this trend in Yekaterinburg, where the number of companies and self-employed entrepreneurs has climbed. Khazov emphasized that the funeral industry is attracting new entrepreneurs. This expansion comes amid record losses suffered by the Russian army in Vladimir Putin's war against Ukraine, as reported by The Moscow Times.

Putin Calls for Unity as Russia's War Drags On

"During the Great Patriotic War, the entire home front worked for the front, for our soldiers, for our defenders. But they didn't just produce tanks, aircraft, rifles, and shells. Even in the harshest months of the war—the freezing winter of 1941–42—children, grandmothers, and women knitted socks, just as they do today, and sent care packages and gifts to the front," Putin said at the forum "Small Homeland—Russia's Strength," broadcast by Russian state television on Rutube on April 21.

"Our victories have always been rooted in this unity. And it will be no different today," he declared. Whether this rhetoric can reverse Russia's economic decline, however, may hinge on how long petrodollars keep flowing despite the Hormuz blockade—and whether they can truly stabilize the economy. For now, they remain a lifeline. Meanwhile, oil has resumed flowing through the Druzhba pipeline from Russia to Slovakia and Hungary after a nearly three-month hiatus, even as Ukraine's drone strikes continue.