Russia’s industrial sector began to acutely feel the weight of the invasion of Ukraine, ordered by dictator Vladimir Putin, and is now facing a slowdown that affects everything from railways to the cement, automobile, coal and steel industries.
According to an agency report Reuterspublished this Thursday (9), some of the country’s largest industries have recently reduced working hours, interrupted operations and cut salaries in the face of the drop in domestic demand and the collapse in exports.
According to the publication, companies such as truck manufacturer Kamaz, automaker GAZ and state-owned Russian Railways began adopting four-day weeks to avoid mass layoffs. Cemros, Russia’s largest cement producer, also reduced the working hours of its 13,000 employees.
“This is a necessary anti-crisis measure. The goal is to retain the entire team,” said company spokesman Sergei Koshkin.
The shrinking of civilian sectors reflects the imbalance caused by the war economy and sanctions imposed by the West. A study of the Center for Macroeconomic Analysis and Short-term Forecastingcited by Reutersshows that sectors not linked to the military apparatus have already shrunk by 5.4% since the beginning of this year, and Russian GDP growth is expected to fall to just 1% this year.
Meanwhile, the Kremlin continues to direct resources to the military complex. According to the independent newspaper Novaya Gazeta Europethe new Russian budget allocates 38% of all federal spending to defense and security – the highest percentage since the end of the Soviet Union. Economist Vadim Baranov told the outlet that the so-called “war budget” aims to show that “Russia has not changed its internal or external priorities”.
The decision, however, is eroding the civil foundations of the economy. According to economist Alexander Kuzmin, heard by Novaya Gazetathe country faces a “paradox”: reducing military spending would cause a recession – since the entire Russian economy has become directly dependent on these investments, but maintaining it means deepening the collapse of civilian sectors.
“It will be difficult to get out of this and it is not clear how to manage it,” he said.
For economist Elina Rybakova, from the think tank Peterson Institute for International Economicsgrowing dependence on the military sector creates a bubble similar to the one that preceded the 2008 global financial crisis. “The military complex is consuming the resources and labor that should support civilian industries,” he said. If war spending is reduced, Russia could face a recession “with falling production, rising unemployment and widespread wage cuts.”
A Novaya Gazeta also pointed out that the increase in interest rates in Russia to contain inflation – currently at 17% – is making credit more expensive for all sectors, except the military, which receives subsidies and loans at reduced rates.
Official statistics confirm the worsening of the situation. THE Reuters reported that wage arrears have tripled in a year, and factory closures are spreading across regions dependent on heavy industry such as the Urals and Siberia. In the Kuzbass coal basin, 18 of the 151 mining companies have already closed their activities, and around 19 thousand miners have lost their jobs.
Even so, the Kremlin maintains its optimism speech. Putin rejects bankers’ warnings about the risk of stagnation and insists that the slowdown is part of “controlling inflation”, forecast at 6.8% for the year. However, Russian and Western economists interviewed by both vehicles agree that the economic model based on war is close to its limit.
