‘Statistical illusions’ What’s hidden behind Russia’s wartime economic triumphalism?

On February 7, Russian Prime Minister Mikhail Mishustin reported to Vladimir Putin on the state of the economy, presenting the latest official data. According to calculations by the Federal State Statistics Service (Rosstat), gross domestic product growth in 2024 was 4.1 percent — higher than government forecasts. Russia’s nominal GDP exceeded 200 trillion rubles (almost $2.2 trillion), which Mishustin called a “historic record.” Federation Council Chairwoman Valentina Matvienko described the result as an “economic miracle” achieved despite sanctions. Future economists will study Russia’s feat, she said. In the article below, Meduza examines the information available about Russia’s economy and explains why analysts question the country’s supposedly record performance. We also review what to expect from the economy in the year ahead.

Did the Russian economy really set a record? What’s to dispute in the numbers?

Suspicions about the accuracy of Rosstat’s data are nothing new, but the issues with Russia’s “record economic performance” lie elsewhere. 

Speaking to Putin, Prime Minister Mishustin cited Russia’s nominal GDP, which ignores inflation and simply does not reflect the country’s real economic situation. In other words, Russia’s nominal GDP would have soared even higher if prices had risen faster. On Telegram, channels covering economic news sarcastically reported Mishustin’s comments with the celebratory emojis “🎉 🥳.”

This is not the first time Russian officials have emphasized economic metrics that are representative only deceptively. For example, last summer, Vladimir Putin claimed that Russia had become the world’s fourth-largest economy. This conclusion was based on an assessment by the World Bank, which calculated GDP using purchasing power parity (PPP). There are several factors to remember here:

• First, this metric does not account for actual exchange rates. Analysts compile a “basket of goods” that might cost $100 in the U.S. If the same set of goods can be bought in Russia for, say, 3,000 rubles, the “parity” exchange rate would be 30 rubles per dollar. In its latest study, the World Bank estimated the “hypothetical dollar” at 23.69 rubles. As a result, Russia’s PPP-adjusted GDP surpassed that of Japan and Germany.
• Second, this is a labor-intensive study published once every four years. The calculations were based on 2021 prices, and the situation may have changed since then.
• Third, even the World Bank acknowledges that there are at least five different ways to calculate PPP. Rosstat publishes its own estimates of this indicator, which suggest that Russia’s economy is pulling ahead.

Economists use GDP per capita (converted into dollars at the market exchange rate) to measure a country’s prosperity. According to estimates by the MMI project (a popular macroeconomics Telegram channel created by CentroCredit Bank economist Evgeny Suvorov and Elvira Nabiullina adviser Kirill Tremasov), this figure in Russia was $14,800 in 2024 — higher than forecasts but still below 2013 levels, when it nearly reached $16,000.

So, Russia’s economy did grow? It’s a success story?

It did grow, but calling it a success is questionable. Real GDP growth (adjusted for inflation) exceeded forecasts, reaching 4.1 percent. Rosstat also “revised” its initial estimate for 2023, determining that Russia’s economy also grew by 4.1 percent that year, rather than the previously reported 3.6 percent.

Technically, this isn’t record growth. For example, the economic rebound from the coronavirus pandemic in 2021, when the GDP grew almost 6 percent, was even greater. Russia witnessed a similar surge in 2012, when the quarter-by-quarter growth rate was twice the average of the past decade.

According to Mishustin, this proves that Russia has “withstood unprecedented sanctions pressure.” The prime minister said manufacturing has been the country’s main growth driver and credited the president and his cabinet with devoting “special attention” to this sector.

Rosstat estimates that Russia’s manufacturing sector grew by 8.6 percent, which is expected for a production category that includes all defense enterprises fulfilling state contracts. For example, in the second year of the war, economist Natalya Zubarevich commented: “When I see that manufacturing in the Kurgan region went up 48 percent, it’s clear to me how many more infantry fighting vehicles the Kurganmash factory produced.”

Last year, state spending on the military-industrial complex was unprecedented in Russia’s post-Soviet era — nearly a third of the federal budget. In nominal terms, defense expenditures officially increased by 70 percent compared to 2023. In reality, the figure was even higher: Toward the end of the year, the Finance Ministry allocated an additional 1.5 trillion rubles (roughly $16.2 billion) beyond the planned budget, including additional military funding. “Unexpected expenses arose,” Finance Minister Anton Siluanov explained.

Analysts at Raiffeisenbank estimate that government spending directly accounted for one-fifth of Russia’s GDP growth. The indirect impact was likely even greater, as the heavily financed manufacturing sector generates demand in other industries — for example, contractors benefit from building new factory workshops, and banks profit from transaction fees.

At the same time, Russia’s civilian industries have not seen comparable growth. The picture is far less rosy when excluding the sectors with a “significant military-industrial presence” from Rosstat’s data. Analysts at the government-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting concluded that non-military industrial production has stagnated since mid-2023. The center also found that private-sector investment activity is “close to stagnation.”

By the end of the year, the situation worsened due to the Central Bank’s high key interest rate: Returns in most industries fell below the yields of bank deposits and government bonds. Billionaire Alexey Mordashov has complained that companies found it more profitable to park their money in banks than to take risks on developing their businesses.

GDP growth in wartime is not unusual — other countries in armed conflicts have witnessed similar trends. However, as University of Chicago professor Konstantin Sonin explained, such growth can be considered a “statistical illusion”: Economists can record the market value of a manufactured television, but a missile produced during a war has no market price at all.

What should we expect in 2025?

Long story short: more of the same, but without record GDP growth.

Technically speaking, high government spending hasn’t gone anywhere. In fact, expenditures rose 73 percent compared to January 2024. The Finance Ministry says this spike results from advance payment practices — a mechanism the agency has used before, just on a smaller scale.

The revenue side of the budget raises greater concerns. In early January, the Biden administration expanded U.S. sanctions against Russia’s oil and gas sector to make any involvement in Russian energy formal grounds for being blacklisted. Additionally, dozens of tankers have been sanctioned and no longer have access to maintenance in foreign ports. Once the transition period ends and the restrictions take full effect, market stakeholders expect a drop in Russia’s export revenues. So far, that hasn’t happened.

There are also risks associated with the Trump administration’s plans to ramp up U.S. oil production, which would drive down prices. Rising import tariffs will also reduce demand for raw materials. Already, Russia’s monthly oil revenues are hovering near annual lows, with contributions to the budget falling by seven percent over the past six months. Former Finance Minister Mikhail Zadornov has warned that there are no reserves left for another crisis: Over three years of war, the government has drained the National Wealth Fund to less than 4 trillion rubles ($43.6 billion). “In the event of a sharp drop in oil prices — God forbid it happens — this will be enough to finance budget expenditures for no more than six months,” Zadornov said on February 12.

Analysts at AlfaWealth, Alfa-Capital senior investment advisor Alexey Klimyuk’s Telegram channel, conclude that the expected decline in exports will make the Russian economy more dependent on domestic demand: “And that would be fine, if not for the fact that rising domestic consumption is driving up inflation.” Official data show that prices rose 9.5 percent in 2024, and the Bank of Russia plans to reach its 4-percent inflation target only by 2026. On February 14, the bank suddenly hiked its inflation forecast for 2025 to 7–8 percent. With prices rising so fast and money’s purchasing value falling further, Russia’s nominal GDP will likely hit another record high in 2025.

However, real GDP growth is expected to be far more modest. According to analysts at Raiffeisenbank, 2025 will be a year of “significant fiscal consolidation.” In other words, the government likely plans to curb spending. Banks could serve as a source of capital, but they approve only 5 percent of loan applications — something previously unheard of. Promsvyazbank expects GDP to grow by just 1.5 percent in 2025.

Documents prepared for a government cabinet meeting by the Central Bank and the Economic Development Ministry, reviewed by Reuters, show that both agencies agreed that low oil prices threaten Russia’s federal budget. Additionally, high interest rates are holding back investment. The ministry also pointed to long-term consequences, warning that GDP growth could stall or even decline in two to three years.

Despite these concerns, Mishustin’s report pleased the president. After hearing the prime minister describe Russia’s “record-breaking” economic performance in 2024, Putin remarked: “The result is satisfactory, a good result.”