Russia's economy grew faster than expected in Q2 — but the rebound looks temporary
Russia's GDP rose 1.3% year-on-year in the second quarter, beating official forecasts, but analysts say the growth was driven by temporary factors while the budget deficit keeps widening.
Russia's statistics agency Rosstat reported that GDP grew 1.3% year-over-year in the second quarter of 2026, following a 0.2% contraction in the first quarter. The figure exceeded forecasts from both the Central Bank and the Economic Development Ministry.
However, analysts caution it is too early to speak of a genuine recovery. The rebound was largely driven by temporary factors: the second quarter had 5% more working days than a year earlier, and government spending rose sharply. Federal budget spending reached 11.5 trillion rubles over the quarter, while government procurement, including the state defense order, jumped 38.5%.
Industrial output growth also accelerated, propped up by a military-industrial sector flush with orders, while civilian industries continue to struggle under the central bank's 14% key interest rate and inflation running near 6%. In May, the Economic Development Ministry had already cut its 2026 GDP growth forecast threefold, from 1.3% to 0.4%.
Discussing economic problems has become risky
The report highlights the dismissal of Andrei Klepach, chief economist at state corporation VEB.RF, after his May remarks became public. Klepach said roughly half of the growth slowdown stemmed from the central bank's tight monetary policy, with another share caused by Chinese imports dominating Russia's car and machinery market. He forecast that the war, sanctions and tight fiscal policy would cap growth at 2-2.5% annually, and warned of a possible social crisis.
Budget deficit keeps widening
The federal budget deficit grew by 724 billion rubles in July, reaching 6.455 trillion rubles, or 2.8% of GDP, since the start of the year. The cause is runaway military spending, while oil and gas revenues fell almost 17%. The Finance Ministry has few remaining tools to cover the shortfall, as domestic borrowing has become costly due to high interest rates and foreign capital markets remain closed. Economists estimate the full-year deficit could reach 7-7.5 trillion rubles.
