MOSCOW, Russia — Russia’s economy has continued to grow despite more than four years of full-scale war with Ukraine, but economists and analysts say the headline figures are increasingly masking deeper financial pressures. Official data showed the economy expanded in the second quarter of 2026, while rising deficits, inflationary pressure, weaker energy revenues and the growing dependence on military spending point to mounting strains.
- Russia’s GDP grew 1.3% year-on-year in the second quarter of 2026.
- The federal deficit is on course to be roughly double its 2025 level, according to an Atlantic Council analysis cited in the report.
- Oil and gas revenues in the first half of 2026 were 64% of the level recorded during the same period two years earlier.
- Analysts say economic pressure alone is unlikely to persuade Vladimir Putin to end the war in Ukraine.
Russia’s economy returns to growth
Russia recorded annual economic growth of 1.3% between April and June, according to official data published this week. GDP increased 0.6% during the first half of 2026, with the second-quarter performance exceeding forecasts from the government and central bank.
The figures indicate that heavy government expenditure on the military-industrial complex has continued to support economic activity. A recent increase in oil and gas prices has also provided additional support to the wartime economy.
However, analysts argue that overall GDP growth does not fully capture the condition of Russia’s civilian economy. Alex Kolyandr, director for Europe at Eurasia Group, described the economy as increasingly divided between sectors benefiting from wartime demand and those facing greater pressure.
Deficit and inflation emerge as key warning signs
Charles Lichfield of the Atlantic Council’s GeoEconomics Center identified the fiscal deficit and inflation as two important indicators of Russia’s economic health.
According to his assessment, Russia is on course to record a deficit roughly twice the size of the 2025 figure, which itself was about twice the 2024 level. The pressure comes despite a recent recovery in fossil fuel prices, with energy revenues remaining below earlier levels.
Oil and gas revenues during the first six months of 2026 stood at only 64% of the amount recorded in the corresponding period two years earlier. Ukrainian drone strikes on refineries and tighter Western sanctions have added pressure to the energy sector.
Inflationary pressure is returning
Russia had managed to bring inflation close to its 4% target late last year, according to Lichfield. He said that progress now appeared increasingly difficult to sustain amid continued domestic and external pressures.
The effects are also visible in consumer behaviour. X5 Group President Yekaterina Lobacheva said in April that cookie consumption had increased substantially as consumers turned towards cheaper products for small discretionary purchases.
The shift suggests that households are adjusting their spending as economic pressures affect purchasing decisions, even while aggregate economic activity remains positive.
What options does the Kremlin have?
Analysts cited several options available to the Russian government if fiscal pressure increases. These include raising taxes on oil and gas companies beyond existing levels, seeking international borrowing and potentially using part of the central bank’s reserves that remain outside Western sanctions.
Roughly $300 billion of Russia’s central bank reserves were frozen after the war began. Another approximately $300 billion is estimated to remain in Russia or in jurisdictions not covered by sanctions, although using those funds could affect confidence in the central bank’s efforts to control inflation.
Economic pressure may not end the Ukraine war
Despite the worsening indicators, analysts do not expect Russia’s economic situation alone to force an end to the war. Elina Ribakova of the Peterson Institute for International Economics said the pressure would need to become considerably more severe before it could change Moscow’s calculations.
She pointed to the possibility of a prolonged period of much lower oil prices as a scenario that could create substantially greater difficulties for Russia. For now, however, higher energy prices are providing the government with additional room to sustain wartime spending.
Kolyandr warned that mounting economic problems could even encourage Putin to accelerate the conflict rather than wait for financial pressures to intensify. He argued that the Kremlin could use various accounting and fiscal measures to manage the immediate strain, although the underlying problems would continue to accumulate.
Russia faces a widening gap between wartime and civilian sectors
The emerging picture is therefore more complicated than the headline GDP numbers suggest. Military-linked industries continue to benefit from state spending, while higher interest rates, inflation and weaker activity outside the defence sector create pressure elsewhere.
With energy revenues under strain and fiscal demands rising, Russia still has financial tools available to support the war economy. But analysts say those tools come with increasing economic costs and cannot eliminate the structural pressures indefinitely.
What happens next?
Russia’s economic trajectory will depend heavily on energy revenues, inflation, government spending and the ability of Western sanctions and Ukrainian attacks to constrain key sectors. For now, the available evidence suggests that economic weakness is becoming more visible, but has not yet reached a level that analysts expect to determine Moscow’s decision-making over the war.
Frequently Asked Questions
Did Russia’s economy grow in the second quarter of 2026?
Yes. Official data cited in the report showed Russia’s GDP grew 1.3% year-on-year in the second quarter of 2026, while growth for the first half of the year reached 0.6%.
Why are analysts concerned despite Russia’s economic growth?
Analysts point to rising fiscal deficits, renewed inflationary pressure, weaker oil and gas revenues and the economy’s growing dependence on military-related government spending.
