Lies, big lies, and Russian statistics
Do sanctions imposed on the
Russian Federation work?
Russian statistical office has published that in the first quarter Russian GDP declined only by 1.8%, but highly likely it has been cooked. Based on their own reports, the actual decline is closer to 5%.
Here is why:
Amid the prolonged and expensive war adventures of the Russian Federation, IMF projected that the Russian economy in 2023 will perform better than the UK according to its forecast, which raised eyebrows of some economists and caused fury in the UK, especially among the Brexit supporters.
It is unclear how the Russian economy is performing, but it is clear that neither researchers nor respected international organizations should base their forecast on Russian official statistics, as they will look exceedingly at odds with reality.
In nominal terms industry and raw material sectors in Russia declined by 14% and 36% in 2023Q1. But Rosstat publishes rosy pictures of real increase of 0.3% for industry and 4.9% decline for raw materials sector, which allows to come up with a decent 1st quarter GDP decline of 1.8%. Presumably, they are going to publish economic growth in the remaining quarters due to the effect of the low base of 2022.
Why do nominal and real numbers differ that much?
It all boils down to the calculation of sectoral price deflators, which is prone to measurement errors or intentional manipulations.
Rosstat published its main document, reporting economic indicators of the Russian Federation in January-May 2023. The file can be downloaded from here: https://rosstat.gov.ru/storage/mediabank/osn-05-2023.pdf
It reports that real GDP in the first quarter of 2023 declined by 1.8% relative to the same period of 2022. It further presents two very interesting tables: Table 2 and Table 3 on pages 8-10. Table 2 compares GDP components by different sectors in 2023Q1 and 2022Q1 in current prices. Table 3 reports changes in the same GDP components based on constant prices.
Comparing the two tables allows calculating implied price deflators by sector s using the following formula
Comparing real and nominal changes from the two tables reveals large discrepancies in real and nominal growth rates, especially for raw material extraction and industrial production. In nominal terms industry and raw material sectors declined by 14% and 36%. However, in real terms, there are 0.3% increase and 4.9% decline consequently. Also, in nominal terms, the state services, including the military increased by 60%, while in real terms only by 4.0%.
This brings us to the implied GDP deflator numbers, looking very odd:
Raw material producer prices declined by 31.3%, while industry prices decline by 14.4%. There is an earlier version of the report, which states on p. 120 that in the first quarter of 2023, producer prices for raw materials declined by 26.3%, which is not very far off the implied price deflator. However, the same report claims that the industrial sector prices declined only by 4.1 percent. Quite a substantial difference from the implied GDP deflator.
Can we correct the Rosstat forecast based on the known information?
Now, how such a discrepancy would impact the real GDP growth estimate? The difference would be roughly equal to
So it is very likely that the actual real GDP growth in Russia was about 3 percentage points lower.
Main takeaways
It is not hard to check numbers reported by the Russian statistical office for consistency and both IMF and World Bank have the resources and expertise to do it, so as not to embarrass themselves by publishing unrealistic forecasts. At the same time, markets start feeling something as Russian Rouble was performing as the second worst currency against the dollar this year: