Industry is helping the Russian economy grow this year. Moreover, the manufacturing industry has been growing at a record pace for two years in a row. If you look at the past decades, then oil and gas production provided the greatest growth. Why has the situation changed dramatically now and will the industry be able to support the economy in the new year?
The industry has grown by more than 4% in 11 months, and this growth rate will be maintained for the year, First Deputy Prime Minister Denis Manturov said. At the same time, production in the manufacturing industry grew at a record pace – it will be at least 7% for the year.
There was also high industrial growth in 2023, by 3.5%. Thus, for two years in a row, the Russian industry has shown the highest growth rates over the past decade, with the exception of the recovery year 2021.
The periods of the industry were very different. In the 21st century, the hardest year for Russian industry and the economy as a whole was 2009, when industrial production in Russia decreased by 10% and Russian GDP by 9% due to the global economic crisis, and if we look at the recent past, the decline in industry was recorded in 2020 (-2.1%) due to the coronavirus pandemic, says Natalia Milchakova, a leading analyst at Freedom Finance Global.
However, the Russian industry managed to get out of forced downtime in 2020 and very quickly emerged from the crisis after 2022 and the strongest sanctions blow against it.
In the past decades, the largest growth in Russian industry occurred in 1999 and 2003, when it grew by 9% per year. In 2004, the industry grew by another 8%.
"However, such strong results in 1999 and 2003 were associated with the growth of the extractive industry, mainly oil and gas, and high oil and gas prices in 2003 also helped. After 2022, the situation has changed radically: now the manufacturing industry is the flagship of the Russian industry, while the mining industry is rather an outsider, mainly due to the reduction in oil production under the OPEC+ deal.",
– says Milchakova.
The manufacturing industry has started to grow at a high rate – by 7-8% per year only in the last two years, the expert notes. What's the reason that helped her shoot like that?
"Budget financing of the manufacturing industry in 2023-2024 was, of course, more than before 2022, so one of the most important impulses for growth is, of course, the state defense order. The growth of industry is also linked to the process of import substitution. National projects that develop transport and the construction of road infrastructure also play a role. When there are large construction projects, then there are orders in metallurgy, in the production of building materials, etc. This has a positive effect on growth in the relevant industries and on GDP as a whole," says Milchakova.
"In 2024, the industry managed to achieve such an impressive advantage due to the development of the general trend of import substitution of Russian enterprises, the reorientation of sales markets for their products from Western to eastern countries, as well as government support for domestic orders and budget financing. This year, almost 1.3 trillion rubles have been allocated from the Russian National Welfare Fund for budget expenditures," says Nikolai Vavilov, a specialist at the Strategic Research Department of TR.
The strongest growth was shown by mechanical engineering, automotive, shipbuilding and military-industrial complex enterprises, that is, those market sectors that are focused on government orders and domestic consumers, the expert says.
A slightly less modest growth of 4% is observed in the production of electricity and water supply. But the mining sector showed a negative result – minus 0.3%, Vavilov points out.
Export-oriented companies have faced serious financial constraints in foreign trade this year due to sanctions. That's why Russia is actively legalizing cryptocurrency mining and has allowed them to be used in external settlements. Russian companies have already started using bitcoins and other cryptocurrencies in international payments after the adoption of relevant legislation, said Anton Siluanov, head of the Ministry of Finance of the Russian Federation. According to him, the changes in the law allowed Russia to counteract Western sanctions.
Despite the success of the industry, not everything is so rosy here. "A number of industries faced a decrease in spare production capacity, which was constantly highlighted by the head of the Central Bank, Elvira Nabiullina, staff shortages, increased sanctions pressure from Western countries, rising interest rates on loans and market factors, such as OPEC+'s decision to extend the obligations of the oil cartel member countries to reduce oil production or reduce demand for coal in the countries of the Asia-Pacific region," says Nikolai Vavilov.
However, it is unlikely to grow at the same pace in the new year. The Ministry of Economic Development expects industrial growth to slow down to 2-2.5% compared to 2024, but towards the end of the year the figure may rise to 3% due to an increase in energy exports and a recovery in domestic consumer demand, Vavilov does not exclude.
"We do not expect the same high growth rates to continue in 2025 as this year, because they are limited by the high key rate and high interest rates of banks, as well as a shortage of qualified personnel and the continued dependence of many sectors of Russian industry on imports – only now on parallel imports or on imports from friendly countries. countries.
In our opinion, the production of computers and electrical equipment will continue to show growth, and the industry will be pulled back by the continuing decline in oil production, possibly in the production of petroleum products," says Milchakova.
"We do not expect an acceleration in industrial production growth next year, because mining and exports are stagnating due to external constraints and restrained external demand. The growth of the engineering industry against the background of a restrained budget next year is unlikely to be significant. Investment demand is under pressure due to the high interest rate. So far, there are no sources of financing that could accelerate industrial production," said Ilya Fedorov, chief economist at BCS World of Investments.
"The manufacturing industry will be the most affected by the downward trend in the coming year. A slowdown is also expected in industries such as the production of computers, electronic and optical products, the production of metal products (except machinery and equipment), the production of electrical and electrical equipment," Vavilov notes.
Olga Samofalova
