RUSSIAN Industry Collapsing

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October 17, 2024

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The Russian economy has been experiencing significant growth, driven by the state’s sponsorship of businesses involved in the war effort in Ukraine. However, a recent report from S&P Global has cast a doubt over this growth, as manufacturing in Russia has declined for the first time in over two years. The purchasing managers index (PMI) has fallen below the critical 50 level, indicating a contraction in the manufacturing sector. This is a surprise, as the sector had been driving growth in Russia for over a year.

The decline in manufacturing is partly due to a decline in demand, as consumers in Russia are becoming increasingly concerned about inflation, which is still above 10%. The situation is expected to worsen, as input costs and transportation costs continue to rise, leading to higher producer prices and further fueling inflation. This could lead to a vicious cycle, where higher interest rates are needed to control inflation, but this would discourage businesses from taking on debt and investing in new equipment and staff.

Another concerning trend is the decline in employment, with companies already starting to reduce staff numbers due to lower orders and a shortage of skilled workers. This could have serious implications for the Russian economy, as it may lead to a loss of productivity and a reduction in GDP growth. Overall, the situation in Russian manufacturing is critical, and the future outlook appears challenging.