Russian Economy in Worse Shape Than Moscow Admits

The Russian economy is in an increasingly precarious state due to its shift to a war footing and Western sanctions over Moscow's invasion of Ukraine, according to a report by the Stockholm Institute of Transition Economics (SITE), Jan Strupczewski reported for Reuters.

Attempting to downplay the impact of sanctions, Russia claims its gross domestic product grew 4.3% in 2024, following 3.6% growth in 2023. I Photo: kishjar? Wikimedia Commons

The report, prepared for talks among European Union (EU) finance ministers, stated that while Russia’s economy appears relatively stable, this resilience is largely superficial.

Underlying imbalances and structural weaknesses are growing.

“The fiscal stimulus of the war economy has kept the economy afloat in the short term, but reliance on opaque financing, distortionary resource allocation, and shrinking fiscal buffers makes it unsustainable in the long term. Contrary to Kremlin narratives, time is not on Russia’s side,” the report concluded.

The EU has imposed 16 rounds of sanctions on Russia since the war in Ukraine began in February 2022, targeting the country's main sources of revenue—oil, gas, and coal exports.

Other Western powers, including the U.S., Canada, the U.K., and Japan, have also imposed sanctions.

Attempting to downplay the impact, Russia claims its gross domestic product grew 4.3% in 2024, following 3.6% growth in 2023.

However, Torbjörn Becker, who presented the SITE report to EU finance ministers, said Russian GDP figures cannot be trusted, arguing that Moscow is most likely understating inflation, which affects real GDP calculations.

“Russia claims inflation is 9–10%. Why, then, would the central bank maintain a policy rate of 21%? Which central bank sets interest rates more than 11 percentage points above inflation? If any of our central banks did that, their leaders would be out of a job the next day,” Becker told reporters.