The mobilization, the flight of hundreds of thousands of people abroad, and the strengthening of Western sanctions have inflicted new trauma on the wounded Russian economy.
In September, the fall in Russia’s GDP accelerated to 5% from 4% a month earlier, the Ministry of Economic Development said on Wednesday. The industrial decline is the biggest since the beginning of the war: production in factories and raw material deposits fell by 3.1%. However, in August, the industry remained almost at the level of last year (-0.1%). Freight volume decreased by 7.2% year-on-year – a record since the Covid-19 pandemic. Wholesale trade experienced a complete collapse (22.4% in September), while retail decline fell by 9.8%.
Russians’ real disposable income collapsed by 3.4% in the third quarter, four times more than in the second quarter.
“The executive order on mobilization, increased geopolitical risks, and sanctions risks launch the second wave of the economic crisis,” said Evgeny Suvorov, an economist at Centrocredit Bank.
The GDP decline in September was a record: the economy fell by the same amount only in June. The fall in April was 2.7%, in May 4.5%, and in July 4.3%. The dynamics of the economy are “close to the expected trajectory,” says the MED: By the end, it expects the decline to slow down to 2.9%. But even the central bank does not believe the government’s forecasts: according to its estimates, the country will lose up to 3.5% of GDP, and next year the decline could accelerate to 4%.
The “second wave” of the recession could persist until mid-2023, said Olga Belenkaya, head of macroeconomic analysis at Finam. Mobilization will hit consumer and investment activity, and, in addition, export conditions may deteriorate. She points out: From December, the EU oil embargo will come into force, which, according to Vifol, will leave a third of the oil exported by sea, or a million barrels a day, without the possibility of marketing.
Russia is already losing on coal, metals, and timber exports. Contrary to what propaganda claims, the sanctions work well, says Agathe Demarais, director of forecasting at the Economist Intelligence Unit: “Real GDP, retail, car production, everything goes wrong.” Russia is heading for a 6% recession this year, she predicts and could lose another 3.1% of GDP next year.
Mobilization means a new package of sanctions imposed on itself by Russia. And the main consequence is the loss of human capital, says Professor Natalia Zubarevich at Moscow State University: “We are losing the most qualified urban population, which prefers to leave the countryside so as not to be mobilized.”
According to Forbes, up to 700,000 people left the country in the first week of conscription. It’s a “bomb under the economy,” Zubarevich says. However, there will be no breakdown; she reassures: “There will be a quiet, calm, incessant, slow decomposition. It’s getting worse and worse, step by step.”
