Russia's GDP experienced a contraction of 2% year-on-year in the first quarter of 2023, according to preliminary estimates from Rosstat. The decline in GDP was less severe compared to the same period last year, which was heavily impacted by the invasion of Ukraine. Throughout 2022, Russia's GDP contracted by 2%. In the second quarter the Bank of Russia expects economic growth by 4.2%, according to the report on the regulator’s monetary policy released at the end of May. The May consensus forecast predicts a further contraction of 0.3% for this year although the official forecasts from the Central Bank of Russia (CBR) and the Ministry of Economics is more optimistic and predicting mild growth for 2023. The war in Ukraine has had varied effects on different sectors of the Russian economy. Household consumption has decreased, while investments have increased with government support. Government spending has also been significantly elevated to finance the war and stimulate the economy. The retail trade, a reflection of consumption patterns, has remained sluggish, although there have been some signs of recovery. In the first quarter, retail sales volume declined by 7% compared to the previous year. The car trade, in particular, continues to struggle, with new car sales plummeting to less than half of pre-war levels, although sales have started to recover in recent months as Chinese companies enter the market to fill the hold left by the departing OEMs. In terms of real disposable income, Russian households have seen little change in the first quarter compared to a year earlier. Income growth has been supported by lower inflation rates and higher wages. Consumer prices rose by 9% year-on-year during the same period. The tight labour market situation has put pressure on wage increases. Unemployment stood at a historically low level of 3.5% in the first quarter, but the workforce has been shrinking even prior to the war due to demographic factors and emigration. Investments have experienced rapid growth in recent months, particularly in construction and the production of certain investment goods. Construction grew by 9% year-on-year in the first quarter, driven by infrastructure projects and a government subsidy programme to support mortgages. However, residential construction has peaked. The manufacturing sector saw mixed results, with a 1% increase in production in the processing industry compared to the previous year. The production of metal products and various building materials recorded strong growth. Conversely, sectors reliant on foreign trade and foreign companies faced contraction, such as wood processing (-17%), automotive industry (-40%), and mechanical engineering (-12%). Import restrictions resulting from sanctions have made it challenging for companies in these industries to find alternative raw materials, machinery, and spare parts. Primary production also displayed variable trends, with a 3% growth in agricultural production but a 3% contraction in extractive production. Natural gas production declined by 14%, and oil production figures were no longer published by Rosstat. According to the International Energy Agency (IEA), Russian crude oil production declined by approximately 2% in the first quarter compared to the previous year. Government spending has continued to rise rapidly, providing a boost to production across various sectors. Federal budget expenses increased by 22% year-on-year in the first four months of the year. However, income decreased at a similar rate. The budget deficit for January-April already exceeded the projected deficit for the entire year 2023. The approved budget framework aims for a federal budget deficit of 2% of GDP, with slightly reduced expenditures compared to the previous year. However, reducing spending will be challenging if the war in Ukraine continues.