Smoke break in production: industrial growth in Russia has stopped
The Purchasing Managers' Index (PMI), otherwise known as the business activity index, showed a sharp slowdown in the growth of Russian industry. In February 2025, it was at the lowest level since September 2024 and the second since the end, if viewed from 2022. In fact, this means stagnation. Is it possible to say that the growth of domestic industrial production has stopped, or is it just a temporary distortion, fluctuation, in the Izvestia article.
Why has the growth of Russian industry slowed down
February index PMI The monthly S&P index based on a survey of purchasing managers was 50.2 points. This is almost three points lower than in January, which, in turn, was the highest in the last six months. A value above 50 means growth, and below 50 means a drop in activity. Since 2022, it has dropped below 50 only once, last September. Industrial growth in the country in 2022-2025 has become one of the most rapid and prolonged in its history.
The current index showed a decrease in several key indicators, including new orders. This is a leading indicator that may indicate a decline in the near future.Overall, the orders were supported only by fairly good export conditions.
Meanwhile, the price pressure on Russian producers has been weakening for the third month in a row. The rate of purchase price inflation slowed down and became the weakest since August last year. This is especially noticeable against the background of the November high.
At the same time, transportation costs increased significantly, and prices for finished products rose more slowly than in previous months.
Efforts to shift increased costs to consumers were partially weakened by measures to encourage new sales, as the rate of selling price inflation dropped to its lowest level since April 2024.
Due to weak new orders, Russian manufacturers reduced the pace of hiring in February. Job creation continued mainly due to the arrival of full-time employees.
The pressure on production capacity has decreased due to the renewed reduction in the volume of outstanding work, with the pace of this reduction being the fastest since September 2024. Moreover, this is the third reduction in the last four months.
The only positive signs for the industry were the business expectations of Russian manufacturers of goods. They turned out to be extremely optimistic, at least regarding the annual production prospects. Hopes for an increase in consumer demand and new production facilities supported optimism, despite the fact that the level of positive sentiment decreased slightly compared to January.
It should be noted that similar trends prevail in the service sector. The PMI for the relevant sector fell to 51.1 points in February, which is better than in industry, but it cannot be called a strong result.
Recently, there has been a lot of talk about the cooling of the economy under the influence of the highest real key interest rate in the country's history. Can the PMI results be interpreted as signs that the effects of such monetary policy are beginning to take effect and are they the first signs of an economic downturn (in the version of a "soft" or "hard" landing)?
"Growth based on substitute investments is gradually coming to an end"
Ilya Fedorov, Chief Economist at BCS World of Investments
Trees don't grow to the skies. Growth based on replacement investments, which came through the buildup of debt and reduced reserves, as well as accelerated consumption, which did not match the pace of productivity growth, is gradually coming to an end. In our opinion, this year's growth is one of the most restrained. The budget momentum that we saw at the beginning of the year will fade away, budget expenditures in two months amounted to 17.5% of the plan. This is a record for the last 10 years.
Spending dynamics will decrease in the coming months, and the budget will return less money to the economy than it collects in taxes. Lending to individuals shows signs of a gradual recovery, but still remains 50% lower than a year earlier. Loan portfolios are shrinking. Lending to legal entities is more stable if you deduct loans to the military-industrial complex that were repaid through budget payments at the beginning of the year.
But even this factor suggests that the banking sector is re-crediting borrowers at higher rates. The cost of debt service increases with a slowdown in revenue growth. High stakes work. In our opinion, the Bank of Russia will reduce its key rate faster than the consensus thinks, as the growth of restructurings will be a heavy burden on the banking system.
"The economy is currently digesting the Central Bank's measures, spring will be difficult"
Anton Tabakh, Chief Economist at Expert RA Rating Agency
Yes, there is a high probability of a decline in industrial production, since spring will be difficult, despite large budget injections and payments to employees in December. The effect of the rates, including a severe slowdown in construction, are the main reasons.
The economy is currently digesting the Central Bank's measures. But as for the recession, not the cooling, no. With such levels of government spending and staff shortages, a recession is unlikely. If there is a reduction in budget spending, the probability will increase, but this is not an economic issue.
"Business activity indices are useful, but they are a less accurate indicator than Rosstat reports"
Olga Belenkaya, Head of the Macroeconomic Analysis Department at Finam
Business activity indices (PMI) are useful primarily as leading indicators of business sentiment — they come out much earlier than official reports. But this is a less accurate indicator than the report on industrial production from Rosstat. In addition, alternative surveys may show a different picture.
For example, the manufacturing PMI data for January (the index reached a six-month high of 53.1) is at odds with the recently released Rosstat data on a sharp slowdown in industrial production growth in January to 2.2% (year-on-year) from an abnormally high 8.2% in December.
Compared to December, adjusted for seasonal and calendar factors, industrial production decreased by 3.2% in January. It should be remembered here that the Rosstat industrial production index also takes into account the extractive industries, as well as the provision of heat and electricity. And they decreased in January, including due to unusually warm weather and the cessation of gas transit through Ukraine.
As for the manufacturing industry, the impact of tight monetary conditions and a reduction in government-backed mortgages from the second half of 2024 is primarily felt by the automotive industry and housing-oriented industries: metallurgical production and the production of building materials.The December upswing in the manufacturing industry was almost entirely concentrated in industries with a high proportion of government defense orders.
"New capacities are needed for the growth of industrial production in the processing segment"
Alexander Silakov, Director of S+Consulting
The first thing I would like to draw attention to is that the PMI index is calculated by a foreign company S&P Global, which calls into question the level of immersion of the index's authors in Russian specifics. Secondly, it is necessary to take into account the methodology of the index, which is based only on data received from representatives of 300 Russian private companies.
In February, the PMI index was 50.2 points, indicating an expansion in business activity, but if you look at the dynamics since 2024, the charts show a downward trend. At the same time, the Rosstat industrial production index for the same period and excluding dual-use and military products shows a moderate increase in industrial production. The HSE industrial production index shows similar trends.
In terms of industries, the following trends can be noted: today there are some difficulties in the production of building materials and the automotive industry, since their work is closely related to the demand for loans from individuals. At the same time, other manufacturing industries are not experiencing similar problems and are showing positive dynamics.
For a significant increase in industrial production in the manufacturing segment, new production facilities are needed, but their development is impossible without investment. In conditions of increased interest rates, it is necessary to search for new institutional financing instruments, which may include, for example, instruments combining private investment and government support measures.
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