‘The Economy Is Reaching Turning Point’
- 27.03.2025, 16:47
Russian industrial growth has slowed to almost zero.
The “bubble” of the military economy inflated in Russia after the invasion of Ukraine is rapidly beginning to deflate, writes The Moscow Times.
As reported by Rosstat, in February the growth rate of industrial production in the country fell to a paltry 0.2% year-on-year. Compared with January (2.2%), industrial growth in the economy slowed by 11 times, and compared with the fourth quarter of last year (5.9%) — more than 29 times.
Military-industrial complex enterprises, according to statistics, continue to experience a production boom: the output of “finished metal products” (Rosstat includes shells and bombs in this category) is growing by 22.5% year-on-year, and “other vehicles” (which include tanks and military equipment) — by 33.6%.
But civilian industries are on the verge of recession or have already slipped into it. Clothing and footwear factories, which the authorities expected to replace departed foreign brands, reduced output by 0.5% in February and by 1.8% over two months. Food production fell by 3%, while beverage production plummeted by 11.3%. Due to OPEC+ restrictions and tightening sanctions, mineral extraction is declining — by 4.9% year-on-year.
“The economy is approaching a turning point,” Deputy Minister of Industry and Trade Vasily Osmakov said in the Federation Council on March 24. According to official statistics, Russian GDP grew by 4.1% for two years in a row in 2023-24 — a record speed in 14 years. But now the industry has effectively entered stagnation, experts from the Center for Macroeconomic Analysis and Short-Term Forecasting write: the growth in the production of tanks and bombs has ceased to compensate for the decline in civilian industries.
Industrial figures suggest that the Russian economy could have gone into recession in February: GDP was likely lower than a year earlier, says Alfa Bank economist Natalia Orlova. The slowdown in industry is largely explained by the calendar factor, she recalls: last year was a leap year, and there was one more calendar day in February. However, even monthly data shows that output volumes are now lower than they were at the end of last year, notes investment banker Evgeny Kogan.
The industry is under pressure from the high interest rate of the Central Bank and the strengthening of sanctions: enterprises have reduced their investment plans, a credit squeeze has begun, and in some industries the debt burden has increased sharply, which could lead to a chain of bankruptcies in the first half of this year, warns CMAS.
A possible ceasefire in Ukraine, which the Kremlin is discussing with the West, could result in a new wave of problems, since the economy has become accustomed to living in conditions of gigantic military spending, says Alexander Kolyandr, a research fellow at CEPA (Center of European Policy Action).
For the sake of defense investments, the government is sacrificing medicine and education, but it is hardly possible to cut the military budget, Kolyandr believes: this will leave defense industry plants without money and leave the fate of tens of thousands of workers hired to supply the army hanging in the air.
At the same time, Russia remains a technologically backward country, dependent on hi-tech imports, and sanctions have laid the ground for a crisis in the style of the late USSR of the 1980s, the expert warns.