Stockholm, 22 October 2024
Russia’s full-scale war against Ukraine continues with unabated intensity and far-reaching consequences for civilians. At the same time, Russia is spreading propaganda to try and portray the Russian economy as more well-functioning than it actually is. As part of efforts to combat this propaganda, the Swedish Government commissioned the National Institute of Economic Research to analyse economic developments in Russia. Last Wednesday, Minister for Finance Elisabeth Svantesson hosted a seminar in connection with the report’s conclusions.
“Russia is spreading propaganda in an attempt to portray its economy as strong and resilient in order to give the impression that sanctions are ineffective and thereby undermine continuance of support to Ukraine. That’s why it’s important to nuance the view of the Russian economy and look beyond the official figures,” said Ms Svantesson.
The seminar was attended by Director of the Stockholm Institute of Transition Economics (SITE) Torbjörn Becker at the Stockholm School of Economics, who presented SITE’s report, done in response to the Government’s assignment to the National Institute of Economic Research. The report calls attention to one of the main challenges in analysing the Russian economy: the lack of reliable data because Russia’s economic reporting has become intertwined with its war propaganda. The Russian government has stopped publishing large parts of previously available data, and the figures that are available are being used to portray a more positive situation.
The report also highlights that the Russian government’s financial reserves, which have been used to finance war spending, are rapidly running out and may be exhausted within a year. Once these reserves are exhausted, the Russian Central Bank will then be under pressure to lower its policy rate or even to start printing more money, which could lead to high inflation and a weakened rouble.
“It is clear that the Russian economy is not working as well as Putin would have it appear. Resources are being drained to the war industry and the economy is overheated. There are obviously big question marks surrounding the official figures. We must continue to actively combat Putin’s propaganda. Wednesday’s discussion is an important part of these efforts,” said Ms Svantesson.
Russian opposition politician and economist Vladimir Milov and analyst and economist Emil Wannheden at the Swedish Defence Research Institute also attended the seminar.
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The Russian Economy in the Fog of War – New Report
Posted on October 3, 2024 | News
A new report highlights the growing instability of the Russian economy as it grapples with the effects of war and sanctions. Official figures on inflation and GDP growth present an overly optimistic picture, according to the Stockholm Institute of Transition Economics (SITE). The report reveals that Russia’s fiscal resources are under severe strain, threatening its economic future.
Economic Instability in the Russian War Economy
Russia’s war in Ukraine has caused unprecedented challenges for its economy. The report shows that Russia’s heavy reliance on oil exports remains a double-edged sword. International oil prices continue to dictate economic performance, but sanctions and declining demand have strained this vital revenue stream. This has deepened the instability in the Russian war economy.
Sanctions have blocked Russia from Western markets, forcing it to use costly and inefficient trade routes through China and other “friendly” nations. As a result, costs have surged and profits have shrunk, further destabilizing the economy.
Key Research Findings
- Official statistics likely understate the real inflation rate and overestimate GDP growth.
- Russia’s financial reserves, vital for war spending, may be depleted within a year, raising economic risks.
- Fiscal policies are unsustainable, with rising public spending at odds with monetary tightening.
- Sanctions are undermining long-term economic growth, especially in the energy sector.
Sanctions and Long-term Risks for the Russian War Economy
The report explains how international sanctions are driving the Russian economy toward long-term decline. Sanctions are not only limiting financial resources but also cutting off access to key technology and raising trade costs. This erosion of Russia’s industrial base, coupled with heavy war spending, has reduced investment in critical infrastructure and innovation. The future of the Russian war economy looks bleak, with the risks continuing to grow as the conflict drags on.
Read the Full Report “The Russian Economy in the Fog of War”
For a comprehensive understanding of Russia’s economic challenges in the context of war, read the full report by the Stockholm Institute of Transition Economics (SITE). Access the complete report on the Institute’s website.
About SITE
SITE was set up as a research institute at the Stockholm School of Economics (SSE) in 1989 with the mandate of studying developments in the Soviet Union and Eastern Europe. Today, SITE is a leading research-based policy institute on these issues. SITE has also built a network of research institutes in the region (FREE Network) that includes the Kyiv School of Economics (KSE). KSE not only provides a premier economics education to future leaders in Ukraine but is also involved in the analysis of the Ukrainian, as well as the Russian, economy, including analysis of the role of sanctions in limiting Russia’s destructive capacity. KSE has been an important contributor of the data and analysis that underlies this report. For more information, visit SITE’s homepage.
To read more policy briefs published by SITE’s experts, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Source – Freepolicybriefs