@PTINS @Gatorubet and others, you might find this interesting. For nearly four years, many have been saying that Russia’s economy is about to collapse under the pressure of Western sanctions and the war. Yet it has continued to function. Aleksandr Kolyandr, a research fellow at the Center for European Policy Analysis, notes that economic growth fueled by massive spending on the defense sector has virtually come to a halt. Russia’s Federal State Statistics Service (Rosstat) is now publishing figures that are far from reassuring for the Kremlin. In November, industrial output turned negative. Across the economy as a whole, production fell by 0.7% year on year, while manufacturing - for the first time since February 2023 - slipped into contraction, down 1%. Adjusted for seasonal factors, output shrank by 2.5% month on month, pointing not to a one-off disruption but to the start of a sustained cooling. Formally, industrial production for January-November still shows resilience, posting growth of 0.8%. But this growth is driven by a narrow set of sectors and increasingly fails to reflect the economy’s real condition. ▪️ Civilian industries slide into recession A 0.7% increase in mining output masks a deep downturn outside the raw materials sector. For the first time in 15 years, food production declined, with the drop accelerating from 0.2% in October to 0.8% in November. Wood processing fell sharply (-9.1%), as did the chemical industry (-1.7%), furniture manufacturing (-7.5%), and clothing production (-2.4%). In machinery and equipment, the situation is close to collapse. Output of tractors plunged by 61.6%, bulldozers by 53.7%, elevators by 37.2%, and passenger railcars by half. The automotive industry has reverted to its worst levels of 2022, recording a 34.1% decline. According to estimates by experts at the Center for Macroeconomic Analysis and Short-Term Forecasting, civilian industries have cut output by nearly 5% since the start of the year, while virtually all the growth reported by Rosstat has come from the military-industrial complex and mining. ▪️ Guns or butter? Even the defense sector, which has been operating in an overheated mode, is beginning to lose momentum. Output of "fabricated metal products" - the category Rosstat uses to classify military goods - fell by 1.6% in November. A year earlier, this segment had been growing by more than 30%. Production of "other transport equipment," including tanks and infantry fighting vehicles, slowed from 41% growth in October to just 6.4%. Elina Ribakova, an economist at the Peterson Institute for International Economics, notes that for the first time since the war began, the Kremlin is facing a real choice between "guns and butter." The economy is no longer capable of sustaining growth in both the defense sector and the civilian economy at the same time. ▪️ Not a temporary downturn Olga Belenkaya, an economist at the investment company Finam, links the slowdown to tight monetary policy, labor shortages, declining exports, and a strong ruble. In an article for The Spectator, Aleksandr Kolyandr emphasizes that the current stagnation is structural rather than cyclical. In his words, oil revenues in recent years have been directed not toward investment and productivity growth, but toward missiles and tanks that will be burned in Ukraine. This has created a two-tier economy: the defense sector and "everything else," where civilian industry is being squeezed by high interest rates and rising costs. ▪️ Darker clouds ahead? The Russian government has already cut its GDP growth forecast for 2025 to 1%. The World Bank expects at least three years of stagnation for Russia, while economists Aleksashenko, Inozemtsev, and Nekrasov predict stagnation lasting until the mid-2030s. Janis Kluge, an economist at the German Institute for International and Security Affairs, notes that most of the factors that supported the economy in the first years of the war - high commodity prices and a consumer boom - have already disappeared. As a result, Russia is now in its weakest economic position since the start of the war. Russia’s economy is entering a phase in which the old growth model no longer works, and compensating for this through military orders is becoming increasingly difficult. 📷: Russia PMI Manufacturing, monthly dynamics and quarter averages/ Yevgeny Istrebin