EU-Backed Report: Russian Economy Far Weaker Than Kremlin Claims

Despite Moscow's optimistic projections, Russia’s economy is facing mounting structural vulnerabilities and long-term fiscal instability, according to a new assesment by the Stockholm Institute of Transition Economics (SITE), commissioned for the European Union’s finance ministers.

The Gaze reports on this with reference to Reuters.

The SITE report sharply contests official Russian data, warning that the country’s apparent macroeconomic stability masks growing internal imbalances driven by the demands of a war economy and the pressure of international sanctions.

“The Kremlin has relied on short-term fiscal stimulus to maintain the illusion of stability. But behind the façade lies a dangerous mix of opaque financing, misallocation of resources, and eroding fiscal buffers,” the report states.

While the Russian government reported GDP growth of 4.3% in 2024 and 3.6% in 2023, SITE experts argue that these figures are likely overstated due to manipulation of inflation data. “When the central bank sets a policy rate of 21% while claiming inflation is just 9–10%, it signals a lack of trust in its own data,” Becker noted. “This suggests inflation is being deliberately downplayed, which would artificially inflate real GDP figures.”

The report also challenges Russia’s official claim of a 2% annual budget deficit, arguing that real military spending is far higher than reflected in public accounts. Much of the defense financing, the report alleges, is being funneled through state-linked banks, distorting credit growth figures and increasing the risk of financial sector instability.

“If we factor in off-budget military expenses financed via the banking system, the actual deficit could be twice the declared level,” Becker added.

European Commission Executive Vice President Valdis Dombrovskis backed the SITE assessment, calling it a “credible and sobering” analysis. He emphasized that the findings reinforce the EU’s belief that sustained economic pressure remains essential in curbing the Kremlin’s ability to wage the Russian-Ukrainian war.

Since the start of Russia’s full-scale invasion in February 2022, the EU has enacted 17 rounds of sanctions, targeting core revenue streams such as oil, gas, and coal. While Moscow continues to downplay their impact, SITE’s analysis paints a different picture of an economy propped up by short-term fixes and increasingly exposed to financial stress.

As The Gaze reported earlier, EU ambassadors have officially approved the bloc’s 17th package of sanctions against Russia, significantly expanding restrictive measures in response to Moscow’s ongoing war against Ukraine.