Is Russia entering a deep economic crisis?

That the Russian economy was screeching was no secret to anyone who was closely following the situation.

However, the fact that it practically came to a sudden halt, if not a reversal, was a bigger surprise – apparently even to President Vladimir Putin, who last week rebuked his top economic advisers in a Kremlin meeting that was televised for maximum effect.

Among those who have been the subject of Putin's wrath is Elvira Nabiullina, the respected head of the Central Bank, who has played a unique role in keeping the economy afloat despite being shaken by the war against Ukraine.

The question now is whether Nabiullina, who has held the position for nearly 13 years, may have finally lost the support of the Kremlin leadership. And if so, what they plan to do about it.

“Her departure now would not only signal weakness,” said Alexandra Prokopenko, a former Central Bank adviser who is now a fellow at the Carnegie Russia Eurasia Center in Berlin. “It would shake the only institutional fulcrum that has maintained credibility in markets and kept inflation stabilization on track.”

“If they fire him, the whole business ecosystem will panic,” said Nicholas Birman-Trickett, a political risk and commodities analyst and former fellow at the U.S. Foreign Policy Research Institute. The Kremlin “may want lower interest rates, but it also knows that a subjugated person would be a terrible thing.”

Nabiullina is “one of the few positive aspects of economic leadership and the Russian economy,” said Richard Portes, an economics professor at the London Business School, who spoke at a panel discussion in St. Petersburg with Nabiullina in 2019. “There is no one more qualified than her to lead the Russian Central Bank, and any replacement will not be as good.”

Putin "can scold all he wants," but "it's not going to improve the state of the Russian economy, which is pretty disastrous," Portes said. "I think he has a lot to worry about."

The central bank did not respond to email requests for comment.

'Now everyone understands how bad things are'

Russia's gross domestic product (GDP) since the start of the invasion of Ukraine in 2022 has been driven primarily by war spending.

The Kremlin has transformed the country into a war economy, spending record amounts on recruiting and paying soldiers, as well as building factories and transportation networks to produce weapons, tanks, planes and drones, and send them into battle.

As in the two decades before that war, the Kremlin financed economic reorganization through oil and gas exports, despite Western efforts to impede these revenues.

The labor shortage – caused by the lure of men by high wages to fight in Ukraine – led to wage increases, which in turn increased inflation, forcing the Central Bank to raise interest rates.

This worked, but it put pressure on businesses, which are increasingly unable to pay their debts, as well as on consumers, who are struggling to cope with rising prices for consumer goods.

Last year, GDP growth slowed significantly, government data show: from 4.9 percent in 2024 to just one percent in 2025.

However, in the first two months of 2026, the economy shrank by 1.8 percent, Putin said during a meeting in the Kremlin. Officials also indicated that the growth forecast for 2026 – currently at 1.3 percent – ​​could soon be reduced.

“The economic slowdown – and the prospect of Russia entering negative growth territory – is no surprise to anyone who has been paying attention,” Prokopenko said. “The only people who should be aware of this are those who took 4.9 percent growth in 2024 for granted, without asking what drove it.”

“Now everyone understands how bad things are; it just took years of fighting to get there,” Birman-Trickett said. “The system can no longer correct itself.”

The turnaround is showing in fiscal data, with the federal budget deficit rising to 4.5 trillion rubles ($60 billion) – double the same period last year – while oil export revenues have fallen sharply.

Due to the strong ruble, high interest rates, labor shortages and budget constraints, reserves in the Russian economy have been "largely depleted," the Nezavisimaya Gazeta newspaper reported Economy Minister Maxim Reshetnikov as saying at a business forum in Vladivostok last weekend.

'Whoever spoke to him for the last time'

Alongside Reshetnikov, Prime Minister Mikhail Mishustin and other ministers, Nabiullina was at the forefront of a meeting with Putin on March 15, which seemed to suggest that he had been misled about the dire state of the economy.

"I hope to hear detailed reports on why macroeconomic indicators are not meeting the expectations, not only of experts and analysts, but also of the current forecasts of the government and the Central Bank," he said.

Outside Russia, the Swedish military intelligence agency and Germany's main intelligence agency believe that the government in Moscow is manipulating data, underestimating the scale of the country's economic problems, The Financial Times reports.

"We should not attach too much importance to the televised meeting," warned Prokopenko, saying it was a calculated performance.

“One of the enduring patterns of Putin’s rule is that whoever speaks last shapes his perception of the problem,” she said. “It’s not unusual for pressure to have fallen on the economic bloc in the public sphere — that’s how the Kremlin manages internal tensions. This doesn’t necessarily signal a policy reversal or a change in who has power over monetary policy.”

Last summer, prominent business and banking officials began publicly warning about the dangers of “stagflation” – when an economy is burdened by low growth, high inflation and high unemployment.

Business leaders have focused their anger on Nabiullina, who has raised interest rates to curb rising inflation, but this has made it difficult for businesses with loans that are too expensive to refinance.

The director of a smelter in northern Russia raised the alarm last week, saying the economy was facing a "catastrophic event" and that the government had completely lost touch with reality.

In December, a research organization affiliated with Defense Minister Andrei Belousov warned of a possible banking crisis by October if “bad” loans continue to rise sharply.

A day after Putin's rebuke, Nabiullina offered a candid assessment of the sand that is slowing the economy's gears: there are not enough workers, which, she said, has no precedent in modern Russian history.

Despite the criticism, Nabiullina - who reportedly tried to resign immediately after the 2022 invasion of Ukraine but was rejected by Putin - has stuck to her course, which experts say partly reflects Putin's support.

By law, her term as head of the Central Bank expires in a year. Prokopenko said it was unlikely that Putin would replace her before that deadline.

"The most interesting question is what will happen with the renewal of the mandate: will political conditions within a year make an independent (Central Bank) governor more or less convenient for the Kremlin," she said.

"As I said, it is one of the few defenders of the stability of the Russian economy," Portes said.

The Geopost