Photographer: Sefa Karacan/Anadolu Agency/Getty Images

New Way of Counting Tanks Gives Putin’s Economy an Instant Boost

  • New methodology boosts impact from military spending
  • Revision of 2015 result seen driven by binge of arms-buying

It’s been the longest recession of the last two decades, but thanks mostly to a new way of counting the Kremlin’s weapons spending, Russia’s statistics service says the contraction hasn’t been nearly as bad as originally reported.

New government data this week showed the economy contracted only 0.2 percent last year -- much less than the 0.5 percent expected by many economists. In 2015, when the hit from falling oil prices and Western sanctions was most intense, the decline was also less severe, at 2.8 percent, according to the statistics service. That’s an improvement of about 2.4 trillion rubles ($39 billion) from the initial reading.

Originally, 2015’s performance had been reported as a drop of 3.7 percent. Altogether, the economy contracted 3 percent over the two years, well short of the 4.2 percent initially reported, making it Russia’s mildest recession on record. That was good news for President Vladimir Putin, who for months has been calling on his government to do more to revive growth.

What changed wasn’t how much Russia produced but how the government counted it. A new calculation method announced late last year as part of a shift toward internationally accepted standards gave more weight to weapons and other military programs, just as Putin’s massive arms buildup was gathering pace. Double-digit percentage increases in spending on weapons systems fed directly into better results for gross domestic product, according to economists.

“These are just the categories of spending which weren’t included in GDP before,” said Ekaterina Vlasova, economist at Citigroup in Moscow. The change appears to have accounted for most of the revision of 2015 results and the out-performance last year, she said.

New Methodology

The new method of counting could mean economic results this year won’t be as strong as expected because budget pressures mean the government is cutting spending on new weapons, delaying the projects until after 2020. “If the rearmament program is really cut and put off to the 2020s, that could pull GDP lower statistically,” Vlasova said.

Even the Economy Ministry, which does its own calculations, appeared surprised. Just two days before the Federal Statistics Service report, the Ministry issued a release saying 2016 GDP was down 0.6 percent.

Alexei Balayev, head of the macroeconomic modeling department of the Economic Expert Group, which advises the government, said the shift in results isn’t related to Russia’s military campaign in Syria, which began in late 2015, or the alleged one in Ukraine started in 2014. 

The statistics agency “looks at the equipment when it’s produced, not when it’s used,” he said. “Most likely, it’s just a coincidence that the methodology was brought into line with international standards at the time of military action.”

The Federal Statistics Service didn’t respond to a request for comment Thursday. It announced the change in methodology in a website statement in December, noting that the new approach would boost growth figures.