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. Last Updated: 07/27/2016

Industrial Growth Grinds to a Halt

Defying predictions of sustained economic growth for Russian industry this year, the rise in output that began after the 1998 devaluation has already ground to a halt, economists said Friday.

"The growth seen since October last year virtually stopped in the last quarter," said Peter Westin, an economist at the Russian European Center for Economic Policy.

According to data released by the State Statistics Committee and then adjusted to allow for seasonal fluctuations, output was unchanged in September for industry, construction, agriculture, transportation and the retail trade, compared to August. It was also at the same level as June.

Devaluation last year had led to a growth spurt for Russian industry, as demand blossomed for domestic goods after imports were priced out of the market in many areas. That stimulus was augmented by the beneficial effects of the boom in world oil prices.

Russia surprised the world with some of the most impressive growth figures - from an admittedly abysmal base - it had posted in the post-Soviet era. The committee had said earlier this month that industrial output for the first nine months of 1999 was up 7 percent compared to the same period last year.

However, some economists have warned that growth could prove to be unsustainable in the long term without the institutional and structural reform needed to attract greater domestic and foreign investment.

The third-quarter downturn this year has mainly been driven by a steady fall in consumer demand, Westin said.

There has been no rise in real wages, leaving consumer expenditure at the same sluggish level as February. Consumer spending fell another 2 percent in September, compared to the previous month, Westin said in a telephone interview.

While the government is said to be looking at ways of driving up consumer demand, average dollar wage levels for November are at $66.90 a month, compared to an average dollar wage of $178.60 before the crisis hit the Russian economy last year. Pensions, meanwhile, are at the miserly level of $16 per month, he said.

An extra 85 billion rubles ($3.25 billion) expected in additional budget revenues this year will partly go towards the indexation of wages for the military, civil service, laboratory workers and court workers, Finance Minister Mikhail Kasyanov said Thursday.

Westin said this would probably act to spur consumer demand for the fourth quarter, and help the government settle its dues as election time draws near. "It's impossible to make long-term conclusions drawing on figures from the last three months alone," he conceded.

Fixed investments in the Russian economy had risen slightly in September, up 3 percent from the previous month, thanks to the increasing profitability of Russian enterprises.

"But a continued lack of focus on restructuring industry and the banking sector means that Russia has a lot more baggage to carry in its attempts to promote growth. This can only mean that increases in industrial activity, if not stunted altogether, will be very slow in the long term," Westin said.

Inflation may also be further driven by rising domestic oil product prices, which have more than tripled since September 1998, he said.