Russian President Vladimir Putin will host his fifth wartime economic conference in St. Petersburg, with his government struggling for a growth strategy as Ukrainian drone attacks hit the economy and businesses see no end to the war.
Russia’s $3 trillion, commodity-dependent economy slowed sharply to about 1% growth last year from 4.9% in 2024, and shrank by 0.2% in the first quarter of 2026, which officials blamed on high interest rates, Western sanctions and a strong rouble. Growth is now forecast at a modest 0.4% this year.
Ukrainian drone attacks deep inside Russia on refineries, fertiliser plants and ports have knocked out a significant part of the economy, affecting one quarter of refining capacity, and creating the risk of fuel shortages in the driving season.
Putin, who wants the economy to start growing again, told his officials to find ways to resume growth. Businesses say the best way to achieve that would be to end the war in Ukraine.
“Rallies and enthusiasm in the Russian stock market following every piece of positive news from U.S.-mediated peace talks for Ukraine indicate what their real answer should be,” a senior corporate executive, who requested anonymity, told Reuters.
The Kremlin said peace talks, which started with great pomp in February last year, were on hold for now, with the United States preoccupied by the war in the Middle East. Billions of dollars in potential U.S. investments in the Russian economy, as well as some easing of Western sanctions discussed at the talks, are also on hold, sowing pessimism in business circles.
LOST OPPORTUNITY
Several prominent members of the Russian elite have attempted to warn Putin about the economic consequences of the war in the past, while Kirill Dmitriev, Russia’s point man in contacts with President Donald Trump’s administration, has been touting the potential economic benefits of a peace deal.
But a senior Russian banker, who also declined to be identified, told Reuters that Putin had already lost a good opportunity last year to strike a deal, and that the economy is now showing signs of instability.
Growth is the main theme at the St. Petersburg International Economic Forum, which runs from June 3 to 6. Delegates are likely to discuss strategies including the redistribution of labour to faster-growing sectors and the promotion of AI-powered digital platforms in e-commerce and banking. Officials also hope that consumer demand will grow.
Oleg Vyugin, former deputy chairman of the central bank, told Reuters that with the key interest rate in double digits, tax increases to fund the war and declining investment, growth will be hard to achieve.
“The government essentially has nothing to offer for the recovery of growth,” he said.
Factors that fuelled Russian growth for most of Putin’s rule such as foreign investment, energy revenues, government spending, falling interest rates and, more recently, import substitution, digitalisation and war-related demand are either no longer present or have exhausted their potential.
“The question is, what will drive growth if consumers are unlikely to increase their spending, investments have been declining for the past two years, and fiscal policy is at best non-stimulative?” said Expert RA ratings agency chief economist Anton Tabakh.
EXTERNAL PUSH
A surge in oil prices, Russia’s main export commodity, due to the war in the Middle East and a near-closure of the Strait of Hormuz, has provided a temporary respite for the government but is expected to be short-lived.
The Russian economy has shown surprising resilience to sanctions during the conflict, contrary to widespread predictions of collapse, in part thanks to military production.
But in a rare critical statement by a member of the establishment, a parliament member from Siberia said in an interview that the economy will not survive a lengthy continuation of the “special military operation”, as the war in Ukraine is officially called in Russia.
“What development, investments, and capital expenditures can we talk about? Neither tanks nor shells have consumer value: the economy produces them, but they cannot be consumed by the population,” said Renat Suleimenov, a Duma parliament member from the Communist Party.
Strained by the war, Russia with a population of only 140 million people, shallow domestic equity and debt markets, and no foreign investment cannot rely on internal drivers to achieve growth as India or China do and is doomed to stagnation until there is a major catalyst, such as the easing of sanctions.
“The economy needs an external push. There won’t be one from either the state budget or the banking system,” said Mikhail Matovnikov, head of Sberbank’s financial analysis centre.
