RIA Novosti reported on August 30th that “Russia’s GDP growth of 5.5% in the first quarter of 2006 was the highest among the Group of Eight leading industrialized nations for the period.” Relying on data from the IMF, Russia’s Federal State Statistics Service “said real year-on-year GDP growth in Russia during the first quarter reached 5.5%, compared to 3.7%, 3.4% and 3.3% in the United States, Japan and Canada, respectively. The rate was 2.3% in Great Britain, 1.7% in Germany, and 1.5% in France and Italy.”

To its credit, RIA also reported that “Russia’s GDP still falls well behind other G8 economies. IMF preliminary estimates based on first quarter performance put Russia’s GDP for 2006 at $900 billion, compared to $13.2 trillion for the U.S., $4.42 trillion for Japan, $2.75 trillion for Germany, $2.23 trillion for Great Britain, $2.10 trillion for France, $1.75 trillion for Italy, and $1.26 trillion for Canada.”

What RIA failed to do, however, like most reports on Russia’s economy, was to put these two bits of data so that a clear overall picture is obtained. The percentage growth rate is totally meaningless to the citizens of a country; what matters is how much additional money got produced in the quarter. When we look at those figures, we see how pathetic Russia’s economic growth really is.

If Russia had 5.5% annual grown on a GDP of $900 billion, than means the value of its economic growth in the first quarter of 2006 was 900 x (5.5/4%) or $12.375 billion. Japan, which has a populuation roughly comparable to Russia’s and has virtually no natural energy resources, posted 3.5% annual growth on a GDP of $4.42 trillion. So the value of Japan’s economic growth in the first quarter was 4,420 x (3.5/4%) or $38.675 billion. In other words, with an economic growth rate close to half that of Russia, Japan produced more than three times as much value for its population — and virtually none of that growth occurred because of the accident of rising world energy prices. In fact, Japan’s growth happened despite rising prices, which inhibited its industrial growth considerably. Japan’s growth, in other words, occurred across the breadth of the economy.

If you take energy prices out of Russia’s GDP growth, which is already puny compared to that of other G-8 nations in dollar terms, you are left with a figure that is negligable or non-existent even if you try to supplement it by using “purchasing power parity” formulations (which, as we have previously argued here, are bogus). This broad economic dynamism (driving employment and wage growth) and general lack of dollars available for Russian pockets will make it increasingly difficult for the Kremlin to preserve its power by means of bribery and more likely that it will resort to force as in Soviet times.

One might not be very surprised that a Russian wire service like RIA Novosti would provide an incomplete economic picture for Russia (although RIA is by far the best source of wire news coming out of the country), but this misperception is common in the Western press as well. Not until we have an accurate picture of what is going on in the Russian economy can we properly formulate policy towards Russia as it surges into dictatorship.

Kim Zigfeld publishes the Russia blog La Russophobe.