In Russia, with the beginning of the CBO, the production of umbrellas has grown wildly

In September, the decline in industrial production amounted to 3.1% in annual terms, Rosstat reported. This is the worst result since October of the pandemic year before last – then the figure fell by 5.3%. But the point is, rather, not in absolute figures, but in the very essence of what is happening: specific industries demonstrate such an unusual output dynamics for themselves that it is time to talk about the formation of an absolutely new model of the Russian economy.

A real collapse (minus 52%) befell the production of vehicles, trailers and semi-trailers. The aircraft, machine tool and shipbuilding sectors fell by 16%. The top “leaders” in terms of the largest reduction also included woodworking (minus 19.8%) and the textile industry (minus 12.6%). At the same time, the production of medicines grew in September in annual terms by 12%, clothing – by 6%, tobacco products – by 4%, food products – by 1.8%.

As for the dynamics of specific products, let’s say, the production of ink for writing and drawing decreased by 13 times, domestic pacifiers for children – by 118 times, cell phones – by 17 times, writing and notebook paper – by 13 times.

The production of industrial electric locomotives fell 12 times in pieces and the production of covered freight cars fell ten times. At the same time, the production of domestic umbrellas increased 223 times, milk formulas for children increased 216 times, prams increased 12 times, and sports shoes increased 9 times.

Why such wild drops in production? On the one hand, the effect of a high base of comparison was reflected in the current statistics: in the fall of 2021, the economy accelerated sharply, in September-October, industrial production growth rates reached 8%. There is where to fall! But it’s not only that. The situation was decisively influenced by unprecedented sanctions and the withdrawal of Western companies from Russia.

“This is especially evident in the automotive industry, where many factories producing foreign brands have closed, as well as in the aircraft industry and machine tool building, where the share of imported components is very high,” says Artem Deev, head of the analytical department at AMarkets. – The growth in the production of medicines, clothing, umbrellas, food, goods for children is also a consequence of the sanctions, but with a plus sign. Domestic analogues began to replace imported medicines, as well as Russian brands of clothing and accessories began to replace products of Western brands.

Grocery retailers have increased the production of their own brands, which allows them to replace imports on the shelves, and also helps to keep prices for certain product groups in check.”

The conclusion, according to Deev, is this: in the manufacturing industry with a high degree of dependence on imports, there is a serious decline in output (until replacements for the departed companies are found), and in industries where import substitution is faster, the output of goods is growing.

“The current dynamics is associated with a radical change in many circumstances in recent months,” says Mark Goykhman, chief analyst at TeleTrade. – Sanctions, export restrictions led to a decrease in mining: coal – by 2.3%, oil and gas – by 2.2%, metals – by 6.5% (in September in annual terms). But the problem is also that the overall demand for products, the portfolio of orders is falling. In September, it decreased by 16% in mining and by 27% in manufacturing. More and more companies are experiencing a shortage of skilled workers and financial resources.”

At the same time, output increased in those industries that have a short payback period, are in constant demand and can quickly increase output when market niches are freed from outgoing imports. The most illustrative examples are with food, clothes, umbrellas, milk formulas for children, strollers. As for medicines, the current dynamics of their production is predetermined by the pandemic period, when demand went through the roof.

“Some industries were directly affected by the sanctions, others only to a small extent,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. The manufacturing sectors, the aviation industry, and the auto industry have been critically affected by supply chain breaks, problems with which arose even during the pandemic. Agriculture in this sense was more fortunate, as well as the pharmaceutical industry, where in 2020 a lot of own additional production appeared. At the same time, by the way, the production of overalls and protective suits increased by tens of percent. And today, in the period of the most acute geopolitical crisis around Ukraine, it is not waning.”

On the whole, Nikolaev sums up, there are obvious distortions in the economy today: in some sectors there is a real collapse, in others there is abnormally high growth.