The economy continued to successfully adapt in August, but regular shocks may cause serious damage

RUSSIA ECONOMICS - In Brief 29 Sep 2022 by Alexander Kudrin

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Rosstat reported that in 8M22, the output of the five basic sectors (industry, agriculture, construction, trade, transport) was down y-o-y by a mere 1.8% and 0.4% in August and 8M22, therefore, indicating that the economy was heading to moderate conduction in 2022 as a whole. Industrial output was down y-o-y by 0.1% in August but grew by 0.9% y-o-y in 8M22. Performance diverged across sectors, as agriculture, for instance, grew y-o-y by 8.8% and 4.6% in August and 8M22, while retail sales were down y-o-y by 8.8% and 4.9% in both periods. Construction activity increased y-o-y over the same periods by 7.4% and 5.1%, while transportation and storage contracted by 4.2% and 0.8%. Consumer paid services grew by 2.5% and 4.0% y-o-y in August and 8M22. It looks as though the economy somehow absorbed the initial shock. However, its capacity to weather new storms on the horizon may be much more limited, as amid partial mobilization announced a week ago, the sentiment in the country and business climate won’t improve, to put it mildly. Hundreds of thousands of young men fleeing the country or being called to military service will make a hit. New sanctions for referendums in Donbas and neighboring Ukrainian regions and their incorporation in Russia will bring more sanctions shortly. Not to mention the scheduled escalation of military activity along the frontline, and the risks of additional sanctions amid potential accusations of Russia blowing up or not taking care of its beloved pet project Nord Stream. Evgeny Gavrilenkov Alexander Kudrin