Russia’s top officials have outlined numerous proposals to President Vladimir Putin on how to kick-start the war economy after he scolded them for what amounts to the nation’s sharpest economic contraction in more than three years.

Russia’s economy, which contracted in 2022 but grew in 2023, 2024 and 2025, has outperformed most expectations and avoided the crash Western powers hoped to stoke by imposing the most onerous sanctions ever placed on a major economy.

But the strain of the war in Ukraine – the deadliest conflict in Europe since World War II – and double-digit interest rates slowed growth to just 1% last year. Putin said Wednesday the economy contracted 1.8% in the first two months of this year.

At the start of a Kremlin meeting with Russia’s most powerful economic officials Wednesday, Putin said manufacturing, industrial production and construction were negative in the first two months compared to the same period last year.

Putin said the trajectory of the economy was below expectations and asked officials for detailed options on what can be done to remedy the situation.

Kremlin spokesperson Dmitry Peskov said Thursday that the closed part of Wednesday’s meeting lasted several hours and included a free exchange of opinions.

“The members of the government’s economic bloc have many proposals to activate the economy and give it greater momentum,” Peskov told reporters. He declined to provide details.

Attendees included Prime Minister Mikhail Mishustin, Kremlin Deputy Chief of Staff Maxim Oreshkin, First Deputy Prime Minister Denis Manturov, Deputy Prime Minister Alexander Novak, Central Bank Governor Elvira Nabiullina and PSB bank CEO Piotr Fradkov.

Russia’s $3.1 trillion economy contracted 1.4% in 2022 but grew 4.1% in 2023 and 4.9% in 2024. It grew only 1% last year, and Moscow’s official forecast for this year is 1.3%.

Iran war boost

While there were serious concerns in Moscow about the economic slowdown ahead of the Iran war, the biggest energy supply crisis in modern history is likely to bolster the oil-producing economy.

The International Monetary Fund (IMF) on Tuesday raised its forecast for Russia’s economic growth this year to 1.1%, from 0.8% previously, due to higher oil and other commodity prices resulting from the Middle East crisis.

Still, according to Russian state statistics, the last quarterly contraction of such intensity as the first quarter of this year was likely in the first three months of 2023, when GDP declined by 0.8%.

In a speech on Thursday, Nabiullina, who has served as Putin’s central bank chief since 2013, said the Russian economy is grappling with an acute labor shortage just as the Iran war stokes inflation risk.

“The peculiarity of the current situation is that for the first time in modern history, our economy has faced shortages or limits on labor,” she said, adding that the shortage has created a new reality for both the state and for business. “Now we have the deterioration of external conditions, one could say, that is almost constant both in exports and imports.”

At the same Moscow conference, Finance Minister Anton Siluanov, who was also present at the Kremlin meeting, said the government is considering an early return to the foreign currency market after the ruble strengthened this month.

A stronger ruble helps the central bank fight inflation but is negative for economic growth as it eats into exporting firms’ profits, forcing them to cut investment, and makes Russian products less competitive.

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The head of the International Energy Agency warned on Thursday of possible flight cancellations “soon” if oil supplies remain blocked by the Iran war, as he said Europe has “maybe six weeks or so (of) jet fuel left.”

IEA Executive Director Fatih Birol painted a sobering picture of the global repercussions of what he called “the largest energy crisis we have ever faced,” stemming from the pinch-off of oil, gas and other vital supplies through the Strait of Hormuz.

“In the past there was a group called ‘Dire Straits.’ It’s a dire strait now, and it is going to have major implications for the global economy. And the longer it goes, the worse it will be for the economic growth and inflation around the world,” he told The Associated Press (AP).

The impact will be “higher petrol (gasoline) prices, higher gas prices, high electricity prices,” Birol said.

Economic pain will be felt unevenly, and “the countries who will suffer the most will not be those whose voice are heard a lot. It will be mainly the developing countries. Poorer countries in Asia, in Africa and in Latin America,” said the Turkish economist and energy expert who has led the IEA since 2015.

But without a settlement of the Iran war that permanently reopens the Strait of Hormuz, “Everybody is going to suffer,” he added.

“Some countries may be richer than the others. Some countries may have more energy than the others, but no country, no country is immune to this crisis,” he said.

Without a reopening of the waterway, some oil products may dry up, he warned.

In Europe, “I can tell you soon we will hear the news that some of the flights from city A to city B might be canceled as a result of lack of jet fuel,” he said.

Birol spoke out against the so-called “toll booth” system that Iran has applied to some ships, letting them travel through the strait for a fee. He said allowing that to become more permanent would run the risk of setting a precedent that could then be applied to other waterways, including the vital Malacca Strait in Asia.

“If we change it once, it may be difficult to get it back,” he said. “It will be difficult to have a toll system here, applied here, but not there.”

“I would like to see that the oil flows unconditionally from the point A to point B,” he said.

Birol said more than 110 oil-laden tankers and more than 15 carriers loaded with liquified natural gas are waiting in the Persian Gulf and could help ease the energy crisis if they could escape through the Strait of Hormuz.

“But it is not enough,” he added.

Even with a peace deal, strikes on energy facilities mean it could be many months before pre-war production levels are restored, he said.

“Over 80 key assets in the region have been damaged. And out of these 80, more than one-third are severely or very severely damaged,” he said.

“It will be extremely optimistic to believe that it will very quick,” Birol said. “It will take gradually, gradually, up to two years to come back where we were before the war.”

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German flagship carrier Lufthansa has become the first major airline company to ground planes due to high jet fuel costs, as the aviation industry counts the cost of the Iran ⁠war.

Lufthansa also cited ongoing labor disputes behind the decision that came a day after celebrating the group’s 100th anniversary.

The Iran war has sent jet fuel prices soaring, upending the global aviation industry and forcing airlines to raise fares, curb growth plans and rethink forecasts.

In a first step starting on Saturday, Lufthansa will permanently remove 27 of its smaller regional jets, known as CRJs, operated by Lufthansa subsidiary CityLine, to further reduce losses at the loss-making airline, according to a statement.

These planes are at the end of their operational capabilities and are comparatively more expensive to operate.

In a second phase starting at the end of October, six long-haul jets from Lufthansa’s core brand are to follow, namely four Airbus A340-600s and two Boeing 747-400 jumbo jets.

The final farewell to this aircraft type is planned for next year. In addition, Lufthansa plans to remove around five medium-haul aircraft from its fleet.

The company cited soaring kerosene prices and the costs from ongoing labor disputes as reasons for the cuts. Particularly inefficient aircraft would be taken out of operation early so that less kerosene would have to be bought on the open market, it said.

Based on the crude oil price, around 80% of the kerosene consumption of Lufthansa Group’s passenger airlines is hedged, which is above average, according to the company.

Chief Financial Officer Till Streichert said the measures were unavoidable. Cuts that were planned anyway were being brought forward, he added. “The current crisis is now forcing us to implement this measure earlier.”

Services on long-haul and short-haul routes in the rest of Lufthansa’s network will also be reduced after the summer to make savings, the group said.

The company said its goal is to enable CityLine crews to find jobs within the Lufthansa Group. However, the pilots’ union Vereinigung Cockpit and the cabin crew union UFO say the company’s efforts are insufficient.

Lufthansa now wants to hold talks with CityLine’s works partners on a reconciliation of interests and a social plan.

The aviation giant has been hit by a lengthy industrial dispute, with walkouts forcing hundreds of cancellations across Germany again on Thursday.

A ceremony marking the airline’s centenary on Wednesday was marred by the ongoing strikes by cabin crew, after a separate dispute involving pilots brought operations to a standstill earlier this week.

The costs of fuel have been pushed up globally by higher crude oil prices due to the war in Iran.

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The deputy chief of the Turkish central bank pledged on Wednesday to take a cautious stance amid the Middle East conflict, stressing the monetary authority’s focus on containing spillovers.

In line with this, the Central Bank of the Republic of Türkiye (CBRT) is pivoting its focus toward managing expectations and exchange rates to ensure price stability amid the economic fallout from the conflict, an Anadolu Agency (AA) report quoting the deputy said.

CBRT Deputy Governor Hatice Karahan was speaking at the Institute of International Finance (IIF) Global Outlook Forum in Washington, outlining the bank’s strategy in the face of the geopolitical crisis.

Karahan stated that the Middle East crisis is fundamentally a global supply-side shock and that the bank is focused on preventing external disruptions from affecting the Turkish economy, the AA report said.

“Here it is essential to distinguish between ‘temporary relative price changes’ and ‘persistent, broad-based inflation,'” she said.

“A stronger policy response is warranted if second-round effects on core inflation, wages and expectations begin to materialize.”

“However, as the central bank of Türkiye, during a supply shock, we have to pay very special attention also to the expectations channel and the exchange rate channel; accordingly, in this recent episode, we have adopted a preemptive policy stance to contain spillovers through these channels. … We effectively paused the rate-cutting cycle in March and tightened funding conditions,” she added.

Karahan also noted that the bank will continue to adopt a cautious, data-driven approach, as it is essential during this process, while anchoring expectations through its tight monetary stance.

Her remarks come a week before the expected and closely-watched Monetary Policy Committee (MPC) meeting, where analysts and investors will look for the next step of the bank following a pause in rate cuts in March.

Annual inflation declined to 30.9% in March despite the pricing pressures from the fallout of the Iran war.

The disinflation continues across all subgroups, albeit at varying speeds, the central bank’s chief said earlier this week, according to the text of a presentation made in New York.

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China’s economy grew at a faster pace than expected in the first quarter of this year, expanding 5% from a year earlier as it largely shrugged off impacts from the Iran war so far, according to data released Thursday.

The January-March data released by the government, covering a period when the Iran war began, were better than economists expected and up from the 4.5% growth seen in the October-December quarter, which was a three-year low. The forecasts for the first-quarter gross domestic product (GDP) growth stood at 4.8%.

The 5.0% year-over-year pace in the first quarter sits at the top of China’s full-year target range of 4.5%-5.0%, highlighting resilience that sets it apart from much of Asia, helped by ample strategic oil reserves and a diversified energy mix.

Yet the Middle East conflict lays bare a core vulnerability: an export-led growth model that delivers annual trade surpluses the size of the Dutch economy depends on open sea ​lanes – for China and for the customers it sells to.

And as the world’s biggest energy importer and ​manufacturing powerhouse, ⁠soaring oil prices threaten to drive up production costs and squeeze already thin margins at factories that employ hundreds of millions of people. The longer the conflict drags on, the higher the risks and the pressure is already mounting.

On a quarter-on-quarter basis, China’s economy grew 1.3% in the first three months, the fastest pace in a year.

Economists expect China, the world’s second-largest economy, to be able to weather short-term impacts from the Iran war, now in its seventh week. The war is pushing energy prices higher, worsening inflation and impacting global economic growth. But in the longer term, areas including global demand for Chinese exports could take a hit.

The International Monetary Fund (IMF) this week trimmed its economic growth estimates for China to a 4.4% for 2026 as it lowered its global growth forecasts over the Iran war shocks.

Chinese leaders last month set an economic growth target of 4.5% to 5% for this year, the slowest since 1991.

Long-term risks

“China can likely weather short-term disruptions, but a protracted war and higher for longer energy prices would likely start to bite into growth by the second half of the year,” said Lynn Song, chief economist for Greater China at Dutch bank ING.

Also on Thursday, government data showed industrial output in China rose 5.7% in March year-over-year, better than market expectations, as global demand for Chinese exports of electronic equipment, autos, semiconductors and robotics remained strong.

Retail sales were also up 1.7% from a year earlier, albeit worse-than-estimates and slower than the 2.8% growth in January and February, reflecting sluggish domestic demand for consumer goods.

A years-long real estate sector slump in China has dragged consumer and investor confidence, but the country managed to achieve its targeted “around 5%” growth last year, powered by robust exports that drove its trade surplus to a record nearly $1.2 trillion despite U.S. President Donald Trump’s higher tariffs.

China’s exports will continue to be key in propelling its economy this year, economists believe, but reliance on export growth could now increasingly become a problem.

“The lack of a speedy resolution to the Iran war is likely to dent global growth, which will negatively impact other economies’ ability to absorb Chinese exports,” said Eswar Prasad, a professor of economics and trade policy at Cornell University.

“At a time when all countries are trying to protect their firms, households and economies from the fallout of the Iran war, the appetite for Chinese imports is clearly shrinking,” he explained.

On Tuesday, China reported its exports grew 2.5% in March from a year ago, significantly slowing from the previous two months, although some analysts partly attributed that to seasonal distortions.

China could likely still attain its full-year economic growth target through policy stimulus measures, economists say, but there are other concerns.

A boost in public sector investment, Prasad said, would stabilize headline growth but, unless household demand strengthens significantly, could intensify underlying deflationary pressures and increase the economy’s reliance on exports down the line.

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U.S. President Donald Trump on Wednesday threatened to fire Federal Reserve Chair Jerome Powell if he stays beyond his mandate.

Powell’s term at the helm of the Fed expires on May 15, although he can remain in his role as chairman if no successor has been confirmed.

The central banker said last month that he would not leave his post as a Fed governor until a Justice Department investigation involving him is “well and truly over, with transparency and finality.”

It is rare for a former Fed chair to remain on its board after stepping down as chief. Powell’s Fed governor term ends in 2028.

“I’ll have to fire him,” Trump told Fox Business, if Powell “is not leaving on time.”

The president added: “I’ve wanted to fire him.”

Trump has repeatedly lashed out at Powell over the past year for not cutting interest rates more aggressively.

The Trump administration has taken aim at the independent Fed on several levels, initiating an investigation into Powell over renovation cost overruns at the bank and seeking to oust another Fed governor, Lisa Cook.

On whether he would drop the Department of Justice probe involving Powell, Trump said: “I’m not playing. I have to find out.”

Trump has named former central banker Kevin Warsh to succeed Powell, but he must be confirmed by the U.S. Senate before taking up the role.

Warsh has a confirmation hearing before the Senate Banking Committee next Tuesday.

But he faces an uphill battle with some lawmakers criticizing the DOJ probe as political pressure on the central bank.

Senator Thom Tillis, a member of Trump’s Republican party who sits on the Senate Banking Committee, has vowed to hold up the nomination as long as the investigation remains unresolved.

Rational motive?

However, U.S. Treasury Secretary Scott Bessent told reporters Wednesday that Republicans on the committee “are aligned” in believing that Warsh is a good candidate.

“I am very optimistic that Kevin Warsh will be the chair of the Fed on time,” he said at a press briefing.

Bessent told a CNBC event earlier Wednesday that he hopes “everyone will work to have (Warsh) there on May 16.”

On the impasse, Trump’s top economic adviser Kevin Hassett told an Axios event: “They’ll work something out.”

“I have high confidence that that will happen,” he said on the sidelines of the IMF and World Bank’s spring meetings in Washington.

“It’s very hard to figure out what rational motive President Trump can have for prolonging this investigation of Jay Powell if it’s going to delay the confirmation of Kevin Warsh,” said David Wessel, a senior fellow at Washington think tank the Brookings Institution.

Wessel added that if Trump got U.S. Attorney Jeanine Pirro “to back off,” which observers believe he has the power to do, that would clear the way for Powell’s departure and Warsh’s confirmation.

Powell first took the helm of the Fed during Trump’s first presidency in 2018, and was reappointed to the position under Democrat Joe Biden in 2022.

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