Russian President Vladimir Putin is set to address the flagship St. Petersburg International Economic Forum on Friday, facing a stagnating economy and recent Ukrainian drone strikes that have targeted his home city. The war in Ukraine has driven up prices, prompted tax hikes, and led to two-decade-high borrowing costs, causing business closures and labor shortages. The economy is at its most precarious since the conflict began in 2022.
Economic Pressures Mount
Russia's GDP contracted by 0.2 percent in the first quarter of 2026, marking the first quarterly decline in three years, according to official data. The government recorded an $80 billion budget deficit in the first four months of the year, equivalent to 2.5 percent of annual GDP and exceeding the full-year target. Ukrainian attacks on energy infrastructure, including oil depots and refineries, threaten Moscow's crucial revenue streams. A strike on a facility in St. Petersburg on Wednesday, as the forum opened, produced a plume of black smoke visible to arriving dignitaries.
Alexander Kolyandr, a Russian economy expert based in London, described the situation as a slow degradation. He noted that high interest rates and inflationary pressure are pushing the economy into stagnation, though he ruled out a repeat of the 1990s crisis.
The 'Russian Davos' Transformed
Once dubbed 'Russia's Davos,' the St. Petersburg International Economic Forum (SPIEF) attracted Western investors eager to profit from Russia's booming economy in Putin's early years. Now, it reflects Russia's new global isolation. Exhibits include drones and machine guns, and top guests come from China and Saudi Arabia. American and European attendees are scarce, with notable exceptions such as former Hollywood actor Steven Seagal, right-wing commentator Candace Owens, and MPs from Germany's Alternative for Germany party.
Putin has used past forums to assert control over military spending, criticize Western sanctions, and promise domestic stability. However, many Russians now report rising living costs. When asked about economic woes on Thursday, Putin quoted Mark Twain: 'Rumours of my death have been greatly exaggerated,' dismissing fears of a full-blown crisis.
Small Businesses Struggle
Away from the forum, small and medium businesses are struggling. Svetlana, owner of a maternity and kids brand in Khabarovsk, plans to shut down due to declining births, rising costs, and internet blackouts imposed to thwart Ukrainian drone strikes. 'We are going back to life 18 years ago,' she said, citing frequent card payment terminal outages. Vera, a beauty salon owner in the Moscow region, reported that supply costs have doubled this year, but she remains confident after surviving near collapse in 2022.
Expert Warns of Irreversible Decline
Kolyandr warned that the economy's slow degradation would be irreversible unless the Kremlin makes political decisions, such as ending the war and restructuring the economy. Russia has operated a two-tier economy since the war, prioritizing the defense industry. Higher oil prices due to the Iran war have boosted revenues but not enough to fill the budget gap. Labor shortages persist, with about 30,000 men recruited monthly for the war. 'There is no good solution,' Kolyandr said. 'They will continue to kick the can for as long as possible.'
