The head of Swedish military intelligence has dropped what he clearly regards as a bombshell. Thomas Nilsson told the Financial Times this week that Russia’s economy is far weaker than it appears, that the Kremlin systematically manipulates its statistics to fool Ukraine’s Western allies, and that the central bank is understating inflation, which he believes is closer to 15 per cent than the official 5.86 per cent. For good measure, he endorsed the German intelligence service BND’s earlier estimate that Russia’s budget deficit is understated by $30 billion (£22 billion).
One need not be a Kremlin agent to find this less than convincing. That Russia’s economy is struggling is not in dispute. It lives on a mortgaged future and faces grave structural challenges: a chronic labour shortage, eroding productivity, technological debilitation, persistent inflationary pressure, declining competition and crumbling property rights, to name just a few. Vladimir Putin has been applying lipstick to this pig for years. But the spymasters, in their eagerness to paint the picture blacker still, have got the numbers badly wrong – and in doing so, they are doing Putin an inadvertent favour.
Vladimir Putin has been applying lipstick to this pig for years
Start with the claim about inflation. If Russian inflation were indeed running at 15 per cent, the effect on the rouble’s real exchange rate would be dramatic. A nominally stable currency with double-digit inflation implies a sharply appreciating real exchange rate – which, in turn, should be pulling in imports. In fact, the opposite is happening. And if you don’t trust Russian figures, try Chinese ones: Beijing is Moscow’s largest trading partner; Chinese exports to Russia have been slowing for over a year, reflecting a decelerating Russian economy, not one consuming imports at speed.
A second test: inflation of that magnitude acts as a tax on household consumption, yet the physical volume of retail trade is declining only marginally, again consistent with a slowing economy, not one in the grip of a double-digit price spiral.
Where did the 15 per cent figure come from? Nilsson cited no source, but the number is suspiciously close to what Romir, a Russian marketing research firm, has been publishing. Romir tracks receipts from retailers across some 250 Russian cities, comparing current prices to previous ones – and has consistently reported price rises well above official figures.
This apparent scandal has a mundane explanation: Romir measures only fast-moving consumer goods – the contents of your weekly supermarket shop. The Consumer Prices Index, by contrast, also covers cars, petrol, utilities, airfares, mobile phones, medicines, restaurant meals, cinema tickets, holidays and home renovations. Russian food prices have risen faster than white goods or services in most countries in recent years; Romir captures only the former. It is not a conspiracy: it is comparing apples with oranges.
Romir stopped publishing its data last year, presumably under government pressure, which has had the perverse effect of reinforcing the theory of systematic manipulation. The theory remains unproven.
The claim about Russia’s budget deficit is similarly fragile. If Russia’s actual deficit exceeded the official figure by $30 billion, the excess spending must have shown up somewhere: either in significantly higher inflation (which, as established, is not the case) or in a surge of domestic borrowing, given that sanctions have closed foreign capital markets to Moscow. No such surge in government bond issuance is visible.
The $30 billion figure likely derives from Russia’s genuinely alarming fiscal performance in January and February, when front-loaded military spending collided with weak oil revenues to produce a deficit of 3.5 trillion roubles (£34.6 billion) – uncomfortably close to the entire planned annual shortfall of 3.8 trillion roubles (£37.5 billion). The Kremlin was rattled; a revenue review was mooted; spending cuts were discussed.
Then the US and Israel attacked Iran. Russian Urals crude oil, which had been trading at $44.6 (£33) a barrel, is now above $100 (£74). Every additional $10 (£7.40) per barrel adds roughly $1.6 billion (£1.2 billion) a month to federal revenues. Analysts expect oil to average at around $90 (£66.60) per barrel this year; the Russian budget was built on $59 (£44). At that price, the arithmetic runs heavily in Moscow’s favour. The Kremlin’s revenue review has been quietly shelved. The spending cuts are no longer mentioned.
Can we trust Russian economic data at all? More than these spymasters imply. Since the invasion of Ukraine, Russia has ceased publishing granular foreign trade breakdowns, detailed oil production and export figures, demographic data, migration statistics, and major companies’ financial reports. Analysts are frequently reduced to estimation where they once had hard data. But selectively classifying sensitive information is not the same as fabricating the rest.
The Bank of Finland Institute for Emerging Economies (BOFIT), which has studied the Russian economy for decades, concluded in its 2024 research that despite post-invasion irregularities and increased statistical uncertainty, there is ‘no compelling evidence of extensive systematic data manipulation’. It would be risky, BOFIT added, to assume that Russian statistics deliberately paint an overly rosy picture. Risky indeed – and not merely intellectually.
The narrative of a Russian economy secretly on its last legs is popular in certain Ukrainian and European circles, and the motivation is understandable. But its strategic implications are perverse. If Russia is already collapsing under the weight of existing sanctions, which are costly to the European economies, the logical conclusion is to leave them in place and wait. Yet the proponents of this view invariably argue the opposite: that sanctions must be tightened further. Why pile additional pressure on an economy supposedly already crumbling? And why impose further costs on Western economies for the sake of sanctioning a mirage?
The more useful exercise is harder and less satisfying: an honest assessment of what the current sanctions are actually achieving, where Russia’s real vulnerabilities lie, and how the tools available could be retuned to target them. A policy built on inflated assessments of Russian weakness is not tough-mindedness. It is a gift to Putin, who knows exactly what his economy can and cannot bear.
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