10.02.23 Review

Apples and Oranges: Russian industries post opposing statistics

There is some consensus among analysts that the Russian economy showed signs of growth in December 2022, compared to the previous month’s performance. But, if a number of experts have interpreted this as a sign of recovery, others have characterised it as a sign of ‘unsustainable stagnation.’ Industrial output decline in December 2022 (compared to December 2021) has been estimated to be in the range of 3.1–4.3%. Although some industries have seen production decline by 40% or more, others have seen increases of around 20%.  Output decreased by more than 4% across 19 industrial sectors, and increased by more than 4% across 8, while the results of another 13 industries hovered around zero. This hardly paints a picture of industrial recovery; in actual fact, it can be explained by some industries being in a state of crisis, while others have made use of import substitution, government investment and production orders to meet the country’s war needs to increase their performance.

According to Rosstat, the volume of industrial production in Russia in December 2022 remained at the same level as it had been a month before. Prior to this, the federal service had recorded an increase of 0.7% between October and November (Re:Russia analysed November’s data here). The Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) published similar estimates: growth stood at 1.1% in November. The same figure was calculated by experts from the National Research University, the Higher School of Economics (HSE, led by Vladimir Bessonov), although they calculated weaker industrial production in November than in October (-0.7%). As a result, they do not agree with Rosstat’s observation of a recovery growth trend.

Experts from the HSE and CMASF note that, in December, a wider range of industries ramped up their levels of production. This increase in intensity was observed in 24 out of 39 types of economic activity: in oil and coal production, production of petroleum products, and even in the automotive industry (+25% compared to a very low starting level), the production of metal products (+6.9%, although CMASF experts add that this figure excludes the production of weapons and ammunition), woodworking and food production.

The volume of industrial production, according to Rosstat, CMASF and HSE estimates, 100 = monthly average for 2019

December’s data is especially interesting, as it allows us to estimate the war year’s economic losses, especially since pre-war production peaked in December 2021. According to Rosstat’s estimates, compared to December 2021, production fell by 4.3%, whereas CMASF estimated that production fell by 3.1%. Finally, according to the HSE, this figure fell by 3.4%.

In December 2022, output intensity decreased in 25 out of 39 types of economic activity, compared to figures from December 2021, according to calculations made at the HSE. The production of automotives,a trailers and semi-trailers saw a gross reduction of more than 50% (-52.6%), while intensity also decreased in the extraction of crude oil and petroleum gas (-1.5%), the provision of services to the mining industry (-11.7%) , production of medicines and medical materials (-40.5%) and production of chemical products and chemicals (-7.9%). The dramatic drop in car production occurred as a result of foreign manufacturers leaving the Russian market. The pharmaceutical industry has bounced back to its pre-pandemic levels.

As a result, production of finished metal products accounted for 85% of gross growth. Experts from the HSE also highlight that the index increased by 17.7%, partly due to increased production of operational equipment for nuclear reactors, as well as increased production of petcoke and petroleum products (+3.6%), other mining and quarrying n.e.c. (+23.8%) and coal mining (+6.3%).

Considering the various dynamics of industry indices calculated by Rosstat and the HSE, it is possible to conclude that most industries were witnessing some sort of decline up until June, a result of the macroeconomic and import shocks experienced in March–April. In the second half of the year, industries were divided into three groups: 1) those that experienced rapid growth, which led to a significant increase in output, bringing levels up to those of December 2021; 2) those which bounced back partially or completely after a decline at the beginning of the year; and 3) those that failed to recover. According to Re:Russia experts, the main drivers for recovery were import substitution and a rapid growth in war-related production (for example, military uniform production has tripled, according to Rosstat). As a result, we can observe a rather unusual situation: while some industries experienced a decline in production output by 40% or more (medicines, rubber and vehicles), others demonstrated a growth of around 20% compared to figures from December 2021.

If we divide the 39 industries examined into three groups (those that posted growth of 4% or more, those that posted a decline of 4% or more, and those that either posted a decline of less than 4% or maintained the same level of output), then 8 industries occupy the first group, 19 the second, and 13 the third. This means that there is, in fact, no observable recovery trend in the Russian economy; rather, we might say that Russian economic activity has either been experiencing a state of crisis or a state of overcompensation.

As a result, HSE experts believe that the economy is still following the trajectory of an L-shaped crisis (falling without recovery), while experts from CMASF, who fail to mention the crisis altogether, have concluded (in a previous review of industrial dynamics) that the economy is experiencing a state of ‘unsustainable stagnation.’