Russia’s industrial output resilient in 2022 on war spending

Russia’s industrial output resilient in 2022 on war spending
Russia's industrial production fell by only 0.6% in 2022 thanks to heavy investment by the state as the Kremlin puts the economy on a war footing. / bne IntelliNews
By bne IntelliNews February 7, 2023

Russia’s industrial output in 2022 declined by 0.6% year on year in 2022, according to the latest data from state statistics agency RosStat. In December 2022 alone, the industry contracted by 4.3% y/y, in line with expectations, and posted a 0.1% month-on-month seasonally adjusted increase as compared to 0.7-0.8% growth in October-November. 

As followed by bne IntelliNews, despite the fallout from Russia's full-scale military invasion of Ukraine, the manufacturing sector ended 2022 with a historically strong expansion in output. Manufacturing PMI in January 2023 continued to trend in positive territory.

However, a persisting gap between services and manufacturing suggested that the heavy and light industry could be supported by state demand for the war effort in Ukraine.

The industrial output figures support that. In the manufacturing sector, the dynamics remain mixed, Renaissance Capital commented, with sectors supported by state orders posting outperforming growth (fabricated metal products, electronic and optical devices and clothing). Bloomberg notes that finished metal goods, which includes arms, bombs and ammunition, grew 7% in 2022. 

At the same time, the deepest decline was seen in the automotive industry, along with textile and chemical production.

Russia maintained stable oil output in December which stayed flat y/y, while natural gas and metal ores extraction decreased by 14.6% y/y and 8.6% y/y respectively. For 2022 overall oil, gas and metals grew by 2% and declined by 13% and 4.5% y/y respectively. 

All in all, RenCap analysts see the 0.6% decline in the industrial production in 2022 as “modest compared to previous crisis episodes” due to government spending in both heavy and light industry.

“The war in Ukraine will push industrial output this year even higher by 2% above 2022 but at the cost of falling living standards and stagnating consumption,” Alexander Isakov of Bloomberg Economics commented.