FEATURES OF THE PERCEPTON OF MACROECONOMIC DATA IN WARRING COUNTRIES: THE CASE OF RUSSIAN FEDERATION

Abstract

This article explores the implications of large-scale warfare for the perception and interpretation of a nation’s macroeconomic indicators, particularly gross domestic product (GDP) and consumer inflation. The study aims to identify the practical peculiarities of calculating the GDP of an aggressor state, based on an examination of the russian federation’s economy following the onset of its full-scale invasion of Ukraine. The authors establish that wartime expenditures in a country engaged in a major military conflict effectively reduce the actual scale of its economy – at least by the value of weapons and ammunition expended. Accordingly, when assessing the GDP of a state that has initiated prolonged and ineffective aggression against another country, it is methodologically reasonable to deduct large-scale military losses from the reported GDP. The analysis also reveals evidence that the GDP deflator in the russian federation is substantially underestimated and fails to reflect the true condition of the national economy. It is determined that the officially reported GDP growth rate in russia diverges from the actual figure due to (1) manipulations of the GDP deflator by the russian government and (2) significant losses of military equipment and weaponry in Ukraine, estimated at approximately 3.9% of russia’s annual GDP. Accounting for these factors indicates that, contrary to the officially reported 4.3% growth in 2024, russia’s real GDP in fact declined by roughly 6%. The study further demonstrates that the continuation of hostilities and persistently high expenditures on security and defense are driving the russian federation into a cyclical contraction of real GDP and contributing to an acceleration of actual inflation. Given that inflation in russia appears to have a genuine monetary nature, the conventional anti-inflationary instruments employed by the Central Bank of russia are unlikely to yield effective results. The authors conclude that inaccurate assessment of real GDP in the civilian sector may adversely affect the effectiveness of monetary policy and lead to dysfunctions within the fiscal system. These processes are already observable in the russian federation and are negatively influencing its capacity to sustain the war against Ukraine. Recognition by the Government of Ukraine and the Defense Forces of Ukraine that the russian authorities are misinterpreting the indicators of their own economic development – and that russia’s real GDP has already begun to decline under the strain of full-scale warfare – holds significant practical value for the formulation of Ukraine’s national security policy.