The St Petersburg International Economic Forum, Russia’s flagship event for wooing foreign investment, has been overshadowed by a series of drone attacks on the city. The strikes, which targeted energy infrastructure and residential areas, sent a clear signal that the Kremlin’s war on Ukraine has come home to roost. For the financial markets, this is another reminder that Russia’s economy is under mounting pressure, with capital flight accelerating and the rouble under siege.
The government’s response has been predictable: more spending on defence, more state control, more talk of ‘sovereignty’. But the bottom line is that no amount of patriotic rhetoric can mask the fundamental weakness in Russia’s fiscal position. Inflation is running hot, the budget deficit is widening, and the central bank is stuck between a rock and a hard place.
The drones may have been a tactical setback for Putin, but the long-term economic damage is far more consequential. Foreign investors, already skittish, will see this as yet another reason to stay away. The forum may have gone ahead, but the confidence it was meant to inspire has been shot down alongside those drones.
