President Vladimir Putin said late on Tuesday (4 July) that the Russian economy was performing better than expected after Prime Minister Mikhail Mishustin reported to him that gross domestic product growth and inflation have been surprisingly positive.

GDP growth may exceed 2% this year and consumer price inflation may not rise above 5% in annual terms, Mishustin told Putin at a meeting at the Kremlin. The International Monetary Fund expects the Russian economy to grow 0.7% this year.

"Our results, at least for the time being, let's say, cautiously, are better than previously expected, better than predicted," Putin said, according to a transcript on the Kremlin's website.

Analysts polled by Reuters at the end of June saw GDP growth of 1.2% and inflation at 5.7% in 2023.

Russia's economy contracted 2.1% in 2022 and was under particular pressure in the spring of last year when Kyiv's allies imposed sweeping sanctions against Moscow over its military campaign in Ukraine.

Russia's technocrats have helped to offset some of the blow by repurposing the economy and propelling it with cash, with the finance ministry saying earlier that public spending was 26.5% higher year-on-year in the first five months of the year.

On Tuesday, Mishustin told Putin that he had confidence that if there was no force majeure circumstances, the economy would perform well this year.

"Dear Vladimir Vladimirovich (Putin), the country's economy continues to confidently recover, despite the sanctions, despite all the impediments placed on our country," Mishustin said.

The effect of the sanctions has been painful, however, with Western financial markets and many export markets for Russian companies and commodities closed.

Crucial oil and gas revenues in January-May of this year were nearly half of what they were a year ago in the corresponding period, blamed on lower prices for Urals crude and lower natural gas export volumes.

Finance Minister Anton Siluanov has repeatedly said Russia's budget deficit this year would be no more than 2% of GDP, although most analysts disagree.

The International Monetary Fund is among those expecting Russia to see a sharply wider budget deficit this year.