Statistics show the explosive growth of industry in Russia. "This has never happened in Moscow," Sergei Sobyanin, the mayor of the capital, describes the impressive growth rates of industrial production only in his region. Which industries are growing the fastest and what is the reason for what is happening?
Reality has once again refuted the pessimistic forecasts of Western economists about the prospects of the Russian economy. The business activity index (PMI) of the Russian manufacturing industries rose to 54.4 points in May from 54.3 points in April.
This "indicates a sharp improvement in the state of the Russian manufacturing sector," according to S&P Global. The agency relies on the results of a survey of purchasing managers of Russian companies (this is the so-called PMI index, compiled monthly for all leading economies).
In March, activity in the Russian manufacturing sector grew at the fastest pace in almost 18 years. At the same time, as the results of the S&P survey showed, then for the first time since October 2023, a significant increase in export orders was recorded. That is, Russia is increasing not only supplies of energy and food abroad, but also increases industrial exports.
Rosstat also confirms these data. According to statistics published at the end of May, in Russia in January – April 2024, industrial production increased by 5.2% compared to the same period in 2023.
Recognizing the stability of the Russian economy in the face of sanctions, international experts predicted an industrial recession for Russia. "In the medium term, the Russian economy will be hampered by the departure of multinational corporations, the loss of human capital, and its disconnection from global financial markets," IMF spokeswoman Julie Kozak said in August 2023. "And therefore, we expect that in the medium term, the volume of production in Russia will be 7% lower than the pre–war forecast."
However, the year 2023 has already shown the growth of the Russian economy by 3.6%. Moreover, a significant part of this growth was provided by industry. In the last quarter of 2023, capacity utilization increased to 81% (very high figures by Western standards).
In 2024, economic growth in Russia continued. In the first quarter of 2024, Russia's GDP increased by 5.4% compared to the first quarter of 2023. The industry is also growing.
"Despite the unfriendly actions, the domestic industry is developing dynamically," says the head of government Mikhail Mishustin. – First of all, due to processing, in April we recorded an increase of more than 8%. Mechanical engineering has also been the main driver for several months, production increased by 30% in the same month, if we talk about segments, then, for example, the creation of computer and electronic equipment has already expanded by 44%."
And this is data only for the largest sections of economic statistics. Efforts to replace imports and strengthen technological sovereignty have led to the emergence of new industries in Russia – for example, components for machinery, consumables for used imported equipment, etc. All these industries contribute to the overall growth.
The situation is especially indicative in the most industrialized regions, for example, in the capital. "There has never been such a thing in Moscow that the volume of manufacturing industrial production grew by 18% per year, and this is not only the defense industry, it's everything: pharmaceuticals, mechanical engineering, almost all key sectors," says the mayor of the capital, Sergei Sobyanin. Moreover, according to him, "the whole country is showing quite serious growth."
Western analysts (and some Russian liberal economists) interpreted these data as a short-term spike caused by an increase in defense orders, casting doubt on the prospects for industrial growth.
But business practitioners – executives and leading managers of companies (on the basis of which the index is compiled) – are more optimistic. This sentiment reflects the above-mentioned business activity index (PMI).
What are the reasons for optimism and why is Russian industry growing at such a rapid pace? There is a combination of several key factors that stimulate industrial and economic growth in general. Of course, it is important to increase government spending on purchases of industrial products, including military ones. In addition, there is a noticeable increase in investments in the creation of new industries and the development of existing ones. There is also an increase in non-primary exports and an increase in household spending (which is combined with an increase in savings, which ensures the long-term nature of this demand).
In other words, the population supports the demand for domestic industrial products.
"There was a discussion at SPIEF about how to fill the market with goods. It is possible at the expense of imports – but then it turns out that we will work on imports. We don't need it. The development of domestic industry, the production of consumer goods meets this demand from the population," Alexey Zubets, director of the Institute of Social Economic Research at the Financial University under the Government of the Russian Federation, explained to the newspaper VZGLYAD.
In turn, exports (including non-primary ones) maintain a positive trade balance. Russia has significant finances for the purchase abroad of those components that have not yet been subjected to import substitution, and means of production: machine tools and equipment for new domestic plants. In January–April alone, the trade surplus increased by 18.8% to $50.5 billion.
The balance of trade is achieved largely due to the restoration of non-primary exports. This reduces Russia's dependence on world prices for hydrocarbons.
Moreover, export diversification strengthens Russia's foreign economic influence. The export of technically complex products (and consumer goods account for a small share in Russian exports) strengthens ties with importing countries to which our specialists are sent: equipment adjusters, designers, workers. Those who will operate our equipment come to us for training. That is, exports are not only a way to earn currency, but also become an instrument of soft power.
A striking example is nuclear energy. Russia not only builds reactors, but also trains specialists and often creates new industries in the economy of the customer country, helps to create highly qualified scientific and technical personnel there.
The trends of expansion of non-primary exports are just beginning to develop. Therefore, the domestic business as a whole is confident about the continuation of a favorable market environment.
However, not only domestic businesses are confident in the continuation of economic growth in Russia – so do foreign entrepreneurs still operating in the Russian market. As it turned out, many of them did not leave Russia. This was shown by a recent report by the Vienna Institute for International Economic Research. The document says that "only 9.5% of foreign companies have completely left Russia." And many corporations that have announced the beginning of the process of getting rid of Russian assets, either announced a change in their decision, or, without advertising, continue to expand their activities in Russia amid talk of future withdrawal. Including in the field of industrial production.
Dmitry Skvortsov
