BRUSSELS – The Russian economy is under far more strain than official statistics suggest, according to a new analysis by the Stockholm Institute of Transition Economics (SITE), presented during a meeting of European Union finance ministers on Tuesday.
The report describes Russia’s economic condition as increasingly fragile, warning that the country’s war-driven model and reliance on Western-sanctioned revenue streams are creating deepening structural vulnerabilities. While surface-level indicators point to resilience, SITE argues this stability is largely artificial and unsustainable over the long term.
“The fiscal stimulus of a 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,” the report states. “Contrary to Kremlin narratives, time is not on Russia’s side.”
Since Russia’s invasion of Ukraine in February 2022, the EU has imposed 16 rounds of sanctions aimed primarily at cutting off Moscow’s key revenue sources—oil, gas, and coal. Other Western nations, including the U.S., U.K., Canada, and Japan, have followed suit.
Despite these sanctions, the Russian government claims the economy grew 4.3% in 2024, following a 3.6% increase in 2023. However, SITE researcher Torbjörn Becker—who presented the findings to EU ministers—expressed deep skepticism about the reliability of those figures.
“Russia reports inflation at 9–10%, but maintains a central bank policy rate of 21%,” Becker told reporters. “No credible central bank would hold such a wide gap unless the real inflation was significantly higher. That’s a strong sign they’re understating inflation to inflate GDP growth numbers.”
Becker further warned that Russia’s reported 2% annual budget deficit is likely much lower than reality, given the country’s plunging energy revenues and soaring defense spending. He suggested the real deficit could be twice as large if off-book financing through state-run banks were included.
“Much of the war financing is likely routed through the banking system, which hides the true scale of government spending,” he said. He also cautioned that such hidden deficits are increasing pressure on the Russian banking sector, which is reporting rapid credit growth—often an early warning sign of a financial crisis.
European Economic Commissioner Valdis Dombrovskis echoed the report’s conclusions, stating that the European Commission shares SITE’s concerns about the reliability of Russia’s economic data and agrees that the Kremlin is overstating its economic strength.
“Their analysis confirms that Russian official statistics cannot be trusted and that the economy is under increasing stress,” Dombrovskis said. “This reinforces the importance of sustained international pressure to limit Moscow’s ability to fund its war of aggression in Ukraine.”
The SITE report paints a picture of a Russian economy propped up by short-term tactics, with growing internal imbalances and a potential banking crisis looming—contradicting the Kremlin’s message of economic resilience in the face of Western isolation.