Russia's Manufacturing Sector Shows Mixed Dynamics During Sanctions

Russia's Manufacturing Sector Shows Mixed Dynamics During Sanctions


The Federal Service of State Statistics (Rosstat) published data for September, which show acceleration in the decline of industrial production in annual terms. After the decrease by 0.1% in August, the decline in September is already estimated at 3.1%.

Most likely, this decline was caused by the high base of 2021 and general systemic problems of the Russian industry.

It is clear that the dynamics of production are greatly influenced by demand. Due to the sanctions worsening foreign trade conditions, there is still a decline in production, so it is predictable that after the departure of Western companies, processing can no longer cover the needs of our population in products. Accordingly, the industry is experiencing difficulties in technological industries.

However, it turned out to be no problem to increase the output of a number of simple goods. Yes, we managed to increase the output of components, but at the same time, there were half as many finished cars assembled in September 2022. Unfortunately, in the production of more complex products the domestic manufacturer is not yet able to substitute imported goods. So, with a short-term increase of bodies and components production, which increased by 12.7% and 12.5% in August, respectively, production of finished cars for the month increased only by 2.5%, and in annual terms its production fell by almost 40%.

Data on production of other finished goods also show a short-term increase in output. The figure is higher in the third quarter after a dip in the second (1.2%), while in annual terms the decline is 6.4%.

According to Rosstat, since the beginning of the year industrial production has increased by 0.4% (this result is provided by production growth), in the first quarter by 5.1%, there was a decrease by 2.5% and 1.3% respectively but in the second and third quarters.

In September, domestic industry has not yet had time to react to the conditions associated with the partial mobilization, so its impact is likely to affect only in October. However, the industrial sector, unfortunately, already demonstrates systemic problems, which are expressed in disappointing figures. For example, in the extractive industries sector, production opportunities are narrowed by export restrictions.

Oil and gas production decreased by 2.2%, but the decline for oil was 0.2% and 10% for gas. There was also a 6.5% decline in metal production and a 1.8% decline in other minerals such as stone and clay. As for the manufacturing industry, many experts say it is still undergoing a structural change. On the whole, in manufacturing, the drop in production was 4% in annual terms against 0.8% in August; since the beginning of the year, the drop in the sector is estimated at 0.5%.

The activity of enterprises in the production of simple products has multidirectional dynamics.

For example, in September, against the background of a large harvest, the production of food products increased significantly (by 1.8%.) This especially refers to canned fruit and vegetable products that grew by 9.3% and vegetable oil by 15.1%. Beverage production rose by 4.1% and clothing by 5.6%. Remarkably, this happened against the background of the withdrawal of foreign suppliers from the market.

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