It is a real collapse. As inflation is at a record level (+17.8% in April) and sanctions against Russia are increasing, Russian consumption fell by almost 10% in April compared to last year . Concerning the automobile, they hardly buy new cars any more. In May, sales tumbled 83.5% year on year. Only 24,268 new light vehicles were sold, according to figures published by the Association of European Businesses (AEB), which brings together manufacturers in the sector. It is almost five times less than in France. Compared to April, this is a decrease of 52%.
Decline in car production
The collapse in sales began in March, following the imposition by Western countries of heavy sanctions on this sector, in particular banning the export of spare parts to Russia. Beyond sales, it is automobile production that is among the Russian industrial sectors suffering the most. The withdrawal of many foreign brands (such as Renault) from the country and the cessation of spare parts deliveries have forced many local factories to stop. In April, car production had fallen by 85.4% over one year.
Since the entry of Russian troops into Ukraine on February 24, many producers have also announced the cessation of the sale of components or cars to Russia or the cessation of production in Russia. Renault has sold its assets in Avtovaz to the Russian state, but most production has been shut down, prompting tens of thousands of employees to take paid leave for months.
Russia has also relaxed the standards for the manufacture of vehicles on its territory, authorizing the production of cars without ABS or airbags, because of the shortages of electronic components and spare parts.
All Russian industrial production is in the red
Beyond the automobile, industrial production in Russia went into the red for the first time since the start of the conflict in Ukraine according to figures published last week by the Rosstat statistical agency. In April, industrial production – an indicator giving the temperature of the economy – fell by 1.6% over one year. Compared to March 2022, it even fell by 8.5%, a major setback after a very dynamic start to the year. If the automobile remains the most affected sector, the mining sector also toasted, with coal production down 6.5% over one year and 8.2% over one month. Europe has notably decided on an embargo on Russian coal from August. Oil and gas production fell by 3.6% over one year and 10.9% over one month. The authorities want to be reassuring, assuring that the sanctions barely reach the economy, and predict that after a recession of around 8% this year, the country should return to growth in 2024.
The worse is yet to come
Economists, however, believe that the worst is yet to come in the coming months, as the impact of the sanctions will become more visible and will be felt on the incomes of Russians.
To reassure consumers, Russian President Vladimir Putin assured at the end of May that “according to experts, inflation growth has slowed (…) by the end of 2022, it will not exceed 15%” . He also announced 10% increases in pensions and the minimum wage from June 1, as well as a boost to child benefits. Unemployment fell slightly, reaching 4.0% in April against 4.1% a month earlier. The labor force fell 0.3% in April compared to the same month in 2021.
To explain surprisingly low unemployment, analysts at Renaissance capital had pointed to “a continued decline in the working population in a context of aging as well as the implications of COVID-19” at the end of April, as well as a “leakage of labor from work”. The Rosstat statistics agency counted more than 660,000 deaths linked to the new coronavirus in 2020 and 2021, in a country already facing a drop in the working population. In addition, the pandemic and then the conflict with Ukraine caused the departure of a large proportion of foreign workers in Russia. To this was added the departure of tens of thousands of Russians since the end of February and the start of the conflict in Ukraine.
Despite low unemployment, Russians’ incomes risk taking a hit: to avoid layoffs, many companies sometimes employing tens of thousands of people are making massive use of partial unemployment, which is accompanied by a drop in wages.
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