Russia’s wartime economy may finally be losing steam, fresh data shows.
In June, Russia’s manufacturing Purchasing Managers’ Index, or PMI, sank to 47.5 — its sharpest pace of contraction since March 2022, according to S&P Global.
This was a reversal from the PMI of 50.2 in May, when Russia’s manufacturing activity expanded.
“The Russian manufacturing sector signalled a renewed deterioration in operating conditions during June,” S&P Global wrote.
The downturn was driven by a contraction in new orders due to weak client demand and the strong ruble, which makes Russian exports more expensive.
As a result, factories cut jobs at the fastest pace since April 2022 and slashed purchasing activity at a rate not seen since March 2022.
The downturn has hit sentiment among Russian goods producers amid concerns about global economic uncertainty, sending business confidence down to its lowest level since October 2022, according to S&P Global.
Sharp slowdown after growth on ‘budgetary amphetamines’
The results from the latest S&P Global manufacturing PMI survey are a contrast against the resilience that Russia’s economy has been projecting over the last few years.
Related stories
Business Insider tells the innovative stories you want to know
Business Insider tells the innovative stories you want to know
Russia appears to have avoided an economic collapse since its full-scale invasion of Ukraine in February 2022. But many analysts have said its resilience isn’t sustainable in the long run as it’s fueled by wartime spending.
“It was growth on budgetary amphetamines,” Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis, said at a briefing last month.
He said Russia’s massive government spending and changes to budgetary rules had helped the country to largely overcome the “most punishing effects of the sanctions.”
By the end of 2023, the economy was running so hot that Russia’s top central banker warned that it may overheat. Inflation spiked and interest rates surged. Russia’s key interest rate now sits at 20%.
But signs of a sharp slowdown are emerging.
Just last month, Russian economy minister Maxim Reshetnikov warned that the country is “on the brink” of a recession.
Russia’s GDP grew 1.4% in the first quarter of the year from a year ago, according to Rosstat, the country’s official statistics service. This is a sharp slowdown from the 4.5% growth it posted in the fourth quarter of last year. In 2024, Russia’s economy grew 4.3% for the full year.
“Whether it’s a managed slowdown or a severe drop, we still don’t know,” Kolyandr said. “Nevertheless, we see the economy slowing down.”
