Tuesday, May 13`, 2025
Year : 2, Issue: 37
Reuters: The Russian economy is in an increasingly precarious state as a result of a shift to a war mode and of Western sanctions over Moscow’s invasion of Ukraine, a report by the Stockholm Institute of Transition Economics (SITE) said on Tuesday.
The report, prepared for talks of European Union finance ministers, said that while still relatively stable, the Russian economy was only superficially resilient and that underlying imbalances and structural weaknesses were growing.
“The fiscal stimulus of the war economy has kept the economy afloat in the short term, but the 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,” it said.
The EU has imposed 16 packages of sanctions on Russia since the start of the war in Ukraine in February 2022, targeting Moscow’s main sources of revenue – oil, gas and coal exports. Other Western powers, including the United States, Canada, Britain and Japan also imposed sanctions.
Keen to show Western sanctions are pointless, Russia says its gross domestic product grew 4.3% in 2024 after 3.6 percent expansion in 2023.
But Torbjorn Becker, who presented the SITE report to EU finance ministers, said Russian GDP numbers could not be trusted because Moscow was most likely strongly understating inflation which affected real GDP calculations.
“Russia claims inflation is 9-10 percent. Why would they then have a policy rate of 21 percent at the central bank? Which regular central bank would have a policy rate that’s basically 11.50 percentage points higher than the inflation rate? If any of our central banks were doing something like that, they would be out of their job the next day,” Becker told reporters.
“That’s a very clear indication that inflation may not actually be the right number. If you understate inflation, you will then overstate real GDP numbers,” he said.
