There has been a lot of talk about how Russia’s GDP growth has exceeded some forecasts. While GDP measures output, it does not merely measure output that contributes to welfare. It also excludes non-market intermediary activities. A big change in the past year and a half has been military spending, which is now a larger percentage of GDP. In Figure 1 below, I show the reported year-on-year real GDP growth rate and the real GDP growth rate listed by SIPRI excluding military spending.
figure 1: Russia real GDP growth (blue) and ex-GDP military spending (tan), both yoy. GDP growth in 2023 and 2024 is the July 2023 forecast of the International Monetary Fund’s World Economic Outlook. The value of non-military expenditures in 2023 is calculated based on the expenditure rate in the first half of 2023. Source: GDP from IMF World Economic Outlook (April, July), military spending comes from Stockholm International Institute, Reuters.
Note that the calculation of real GDP (excluding military spending) relies on applying the GDP deflator to the GDP (excluding military spending) output. In the absence of a reliable deflationary index for these two components, this is only a stopgap measure.
The calculation results show that, assuming that the military expenditure in the second half of 2023 is the same as the nominal interest rate in the first half of 2023, military expenditure before GDP will contract by 2.8% year-on-year in 2022, and will contract again in 2023 (IMF World Economics, April 2023 Outlook”) assumes GDP deflator inflation of around 10%, so I think my assumptions are pretty conservative).
Given the skepticism surrounding Russia’s GDP statistics, as well as SIPRI’s calculations, one might be very skeptical about the validity of these calculations. I would point out that the surge in manufacturing output appears to be related to defense (see discussion below) Bofit), so this phenomenon also occurs in other statistics.
More detailed discussion from here June SIPRI Report.
If one wanted to calculate net GDP (another step in the process of calculating the old Nordhaus MEW), one would probably get much slower growth than reported GDP. This is because, under the impact of sanctions, many capitals become obsolete faster. Not to mention the destruction of military capital assets.
On the last point, I gave up trying to calculate and/or estimate numbers.For example, in a July Bloomberg article:
“Russia has lost nearly half of its military combat capability,” Radakin told the legislature’s defense committee. “It fired 10 million shells last year, but can only produce a maximum of 1 million shells a year. It has lost 2,500 tanks and can only produce a maximum of 200 tanks a year.”
Without knowing the makeup of the 2500 tanks (T-90 vs T72 etc.)
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