Q1 2014 results: playing with statistics for political reasons

A few days ago Prime Minister Dmitry Medvedev stated that Russia saw an economic growth at 1% of GDP in Q1 2014. However, he also pointed to the worsening of the overall economic situation in the country. Finance Minister Anton Silyanov assumed that amid the current tight economic situation the Russian Federation might see a zero rate economic growth in 2014. Furthermore, Siluanov also pointed to the fact that the Russian economy has been facing serious challenges ever since the recession in 2008-2009.

The aforesaid figures raise the question about who is right and what data on Q1 2014 will be published by the Federal State Statistics Service (Rosstat)? The differences in the officials’ statements can be explained by the base effect. Indeed, the Russian economy saw growth in the period of January thru February 2014, but the economy advanced against the corresponding period of previous year. A recession might be inferred if the Q1 2014 results are compared with the previous period of October thru December 2013.

Sure enough, government officials are well aware of how GDP growth can technically be calculated, which allows them to use such technical details for political purposes. The Rosstat has just recently revised the 2013 results showing faster GDP growth (not a slowdown) since the second quarter.

We assume that the revision has worked in favor of government officials who are currently required to take decisive measures aimed at recovering the economy. A few days ago the Ministry of Economic Development presented quite an optimistic scenario of economic development in the Russian Federation until 2017, under which as early as in 2015 GDP is expected to have grown about 10% over the value recorded in 2014. Furthermore, the growth is anticipated against a drastic increase (31%) in investment. Given that this country has no prospects for better investment environment, and capital outflow is substantial, the sole resource left for accelerated economic growth is the sovereign funds which accounted for about 8.6% of GDP as of April 1, 2014, according to the Ministry of Finance of Russia.

In accordance with the aforesaid, Minister Ulyukayev’s recent statement about a recession in Q1 2014 may just as well imply the need to take urgent measures to prevent further economic recession, above all, “enhance” the budgetary rule. One only may guess what kind of tricks with statistical data could be demonstrated to justify attempts to spend the resources from the Reserve Fund and the National Welfare Fund in order to “save” the Russian economy.

Maria Kazakova, Ph.D. in Economics, Head of Economic Development Department, Deputy Head of International Center for Budget Sustainability Study