Amid drone strikes, new forecast for Russia's economy

Russian economic growth is showing signs of recovery, with economists polled by Bloomberg forecasting a 0.9% rise in GDP for the second quarter compared to the same period last year. This rebound follows a contraction in the first quarter, largely fueled by surging state expenditures that have exceeded budget plans. Robust consumer demand, supported by double-digit wage growth, also contributes, although it pressures corporate profitability.

President Vladimir Putin prioritizes maintaining economic momentum amid the ongoing war in Ukraine. Government spending, particularly on public procurement, has surged by 39% in the first seven months of the year, according to the Finance Ministry. Defense-related industries, especially those manufacturing drones and missiles, are leading the economic performance. Household consumption has also remained resilient, growing over 7% in the second quarter year-on-year, according to the Economy Ministry.

Despite these positive indicators, the economic outlook faces significant challenges. Ukraine has intensified its attacks on Russian oil refineries, logistics networks, and other critical infrastructure. Drone strikes have disrupted operations at several major plants, leading to fuel shortages across the country and contributing to a new spike in inflation, which economists predict will exceed 6% by the end of July.

The Russian Central Bank has pushed back its target for bringing inflation closer to 4% to another year. The recent wave of Ukrainian attacks in August targeted five oil refineries in a single week, following a brief lull in late July that allowed some plants to conduct repairs and build fuel reserves. Additionally, Ukrainian attacks on warehouses of the e-commerce giant Wildberries have impacted thousands of small businesses due to lost inventory.