Factories are growing disinterested in acquiring loans.
Industrial Stagnation in Russia: Challenges and Forecasts for 2025
The Institute for Economic Forecasting of the Russian Academy of Sciences (IEF RAN) has reported a decline in industrial optimism ratings in May, leading to plans and expectations stabilizing at their worst levels since September 2022. sales forecasts have returned to zero level, with a prospect of decline, while production plans have avoided a significant drop, stabilizing at plus 10 points in April-May after plus 13 points in March.
The slowdown in the economy provides the industry with an opportunity to address labor issues, according to researchers. In May, the growth of expectations for a decrease in the number of enterprise employees stopped, with 40% of respondents in the industry reporting labor shortages.
In a notable development, industrial borrowing plans have registered a negative balance for the first time in 15 years, as indicated by fresh company surveys conducted by the Central Bank. The shortage of working capital emerged as one of the main obstacles to company growth. Despite normal credit availability, this could not counteract the effect of the slowing Russian economy, according to the IEF RAN.
Analysts at the Gaidar Institute (IEA) warn that potential challenges to industrial growth in 2025 could include a reduction in energy purchases from India and China, driven by increased domestic production and the threat of secondary sanctions. The slowing activity in machinery and equipment production due to decreased demand from the construction sector, expensive credit, and labor shortages could also hamper industrial growth.
The Russian economy is grappling with labor shortages, particularly in technical fields, and a surplus of humanities and social sciences graduates. The ongoing conflict in Ukraine, conscription, and the shift from high-tech to labor-intensive sectors are exacerbating the situation. The stagnation in civilian industries has resulted in a hiring freeze, contributing to the labor shortages.
Finance Minister Anton Siluanov has predicted 1.8% economic growth in 2025 under a high-risk scenario, reflecting the challenges facing the economy. The combination of labor shortages, economic stagnation, and ongoing geopolitical tensions suggests that industrial growth in Russia will face significant challenges throughout 2025. The risk of bankruptcies and persistent unemployment in certain regions adds to the uncertainty.
In the face of industrial stagnation, financing plans for companies have registered a negative balance for the first time in 15 years, indicating a shortage of working capital as a significant obstacle to their growth. To address this challenge, the industry may need to seek alternate sources of finance to counteract the effect of the slowing Russian economy. The slow growth in the economy, coupled with labor shortages and ongoing geopolitical tensions, suggests that finance will play a critical role in overcoming the significant challenges facing industrial growth in Russia throughout 2025.
