Stagnation on all fronts: of the sectors of the economy in Russia, only the defense industry is growing

Leonid Zlotov

After a summer recovery, industrial production in Russia is returning to stagnation on a plateau, which is about 95% of the level of production in December 2021. And although many sectors, including in the manufacturing industry, demonstrated recovery growth in September, there is no reason to hope that this trend will continue. The approach of an oil embargo and the removal of at least half a million workers from the economy is unlikely to allow it to continue to balance in a state of "unsustainable stagnation", as analysts have defined it. At the same time, the added effect of building up the military economy - the production of uniforms and weapons - is beginning to play an increasingly important role in Rosstat data. In October, it may smooth out the signs of an incipient second wave of recession.

The Russian industry froze - the recovery of production volumes outlined in July did not continue, after the July jump, the output level returned to the "plateau of the II quarter", follows from the assessment of Rosstat data on the Russian economy and industries for September published at the end of October, which was made by the Center for Macroeconomic analysis and short-term forecasting (CMASF ). The recovery of production volumes, outlined in July, did not continue; the industry is experiencing "unsustainable stagnation," analysts at the CMASF state.

In annual terms (that is, to last September), the reduction in Russian industry is 3.1%; in August this figure was -0.1%. But this is due to the fact that the Russian economy was growing rapidly in the last months of 2021, when the covid was almost a thing of the past and recovery began. And even if the industry remains on this plateau, the gap with last year’s figures will grow: the plateau is 95% of the production volume in December 2021, and if the industry does not grow or decline, then its reduction by the end of the year will be just that .

While Rosstat data is the basis for all assessments of the state of the industry, think tanks use different methods to clean them from seasonality and other random factors (for example, not very reliable statistics in certain segments). Thus, the CMASF does not take into account Rosstat data on the majority of "closed" positions ("defense industry"); the dynamics of production here is connected with the state order, and thus it blurs the trends that are formed in the economy on the basis of market factors. For example, the production of metal products in August was 91.8% compared to last August, and in September it jumped to 112% compared to last September. In the production of machinery and equipment, already in August, the increase compared to last August was 108.9%, and in September it jumped to 128.5%. But all this only indicates an increase in production for the needs of the Northern Military District.

As a result of the exclusion of closed articles, the CMASF gets a slightly different picture of the crisis dynamics. The non-military industry contracted much more intensively, and in July its contraction reached 7% compared to December 2021, but then this gap began to narrow and in September amounted to 4.2%.

In September, compared to August, according to the calculations of the CMASF, the volume of oil production stabilized, and a serious reduction in oil exports was offset by the expansion of oil refining. (The average daily export of Russian oil in September fell by 260 thousand barrels to 4.8 million barrels, the average daily export of petroleum products increased by 30 thousand barrels to 2.7 million barrels.)

Gas production has moved from a decline to a slight recovery increase: in September, an increase compared to August is estimated at 0.8%. In the previous months, gas production has been steadily declining, in September its volume was 12.5% lower than in February, while natural gas production suffered the most (-21% compared to February), while LNG production volumes remained practically unchanged (-0 .2%). Here, too, the Russian government cut pipeline gas supplies to Europe throughout the war months to create an energy crisis there, while at the same time increasing LNG exports.

The decline in the production of building materials continues to intensify (-2.7% compared to August, the cumulative decline since February - 9.6%; moreover, the decline affected mainly finishing and auxiliary materials with a larger share of imported components). At the same time, recovery growth continues in the production of machinery and equipment - 5.3% in September against August, after an increase of 3.6% in August against July. As a result, the decline by February was reduced and now amounts to only 4%. CMASF also sees signs of the beginning or strengthening of recovery growth in the production of electronic and electrical equipment, as well as in railway engineering. Production is also increasing in the non-food segment of consumer goods.