Russia's economic data is a 'collection of lies and distortions' - Markets Insider

• Russia's economic data is full of 'lies and distortions,' economist Alexei Bayer wrote.
• Official stats from Moscow that show a resilient economy are more akin to propaganda, he added.
• Consumer inflation should be at least 30% versus of the official rate of 11% in February.

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In the year since Russia launched its invasion of Ukraine, official statistics from Moscow indicate a resilient economy that's largely withstood the impact of Western sanctions.

But independent economist Alexei Bayer said observers shouldn't place too much faith in those numbers.

"Russian economic statistics are a collection of lies and distortions," he wrote in the Jerusalem Post. "They are meant to convince people at home that their economy is chugging along despite the war, and people abroad that Western economic sanctions don't work and therefore should be rescinded. Many international economists, including official organizations, have bought into this type of Russian propaganda."

After the war began, analysts expected Russia's economy to contract by up to 15% in 2022, as Western sanctions would wear the country down. Instead, it shrank by at least 2.2%, according to best-case scenarios from the likes of the World Bank, the International Monetary Fund and the OECD.

But those estimates are based on official data from the Russian government, said Bayer, who pointed to consumer inflation numbers.

While the official rate stood at around 11% in February — only 2 percentage points more than before the war started — he argued that this metric should be significantly higher, given that nearby Baltic states experienced bigger surges in their inflation.

Despite what Russian data shows, Bayer explained that sanctions must have had considerable consequences on the nation's supplies, as Russia was heavily dependent on food and component imports, especially from the West.

Productivity may have also dropped in the absence of components. Meanwhile, in the face of Moscow's war effort and citizen draft, firms may have had to lift wages to combat a shrinking labor market.

At the same time, the Kremlin's demand for food and clothing to fuel its invasion would also have meant a deeper supply shock. Even corruption premiums may have gone up, Bayer added, amid insecurity about the war.

"Taken together, all this suggests that Russia's consumer prices rose much faster in reality than in official statistics," he wrote. "At least by 30%. It is actually a conservative estimate."

Doubt in the validity of Russian metrics has popped up elsewhere, as Bloomberg recently reported that the country's claim of cutting back oil output by 700,000 barrels per day does not align with export data. 

And historically, economic data from the Kremlin has been unreliable, Bayer noted.

"During the Cold War, the CIA concluded, using Soviet statistics, that the Soviet Union had the world's second-largest economy," he wrote. "When communism collapsed, Russia's economy turned out to be not much larger than Portugal's."

Meanwhile, other economists have seen signs of deterioration, while also drawing Soviet parallels.

Russia's economy is becoming increasingly primitive as its war in Ukraine drags on, and the repercussions could push it down the same path the Soviet Union endured three decades ago, according to University of Chicago professor Konstantin Sonin.

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Russia's economic data is a 'collection of lies and distortions' - Markets Insider
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