Russian Manufacturing Activity Shrinks As Ukraine Sanctions Bite

Data suggest western sanctions against Russia for its invasion of Ukraine are having their intended effect. JL 

Paul Hannon reports in the Wall Street Journal:

Russia’s factories cut production and jobs in March after the U.S. and its allies adopted some of the most severe economic sanctions ever taken following Moscow’s invasion of Ukraine. The survey of purchasing managers at Russian companies recorded sharp rises in prices and a big decline in new orders. Sanctions have deprived many Russian factories of the parts they need to make their products.The Russian survey suggests Western sanctions and the mass exodus of western businesses from the country are having their intended effect. 500 international businesses have closed or suspended operations in Russia

Russia’s factories cut production and jobs in March after the U.S. and its allies adopted some of the most severe economic sanctions ever taken against a country following Moscow’s invasion of Ukraine, a new survey showed on Friday.

The survey of purchasing managers at Russian manufacturing companies conducted by data firm S&P Global also recorded sharp rises in prices and a big decline in new orders. Western sanctions have effectively severed Russia from international finance and barred it from importing key technologies

The firm contacted 250 manufacturing companies in Russia via an online form, asking them whether output had risen or fallen since the previous month. It also asked about employment, orders, stocks and other indicators of activity. The survey is the first internationally comparable barometer of economic activity since the Feb. 24 invasion of Ukraine.

S&P Global said its Purchasing Managers Index for Russia’s manufacturing sector compiled from the answers to the survey had fallen to 44.1 in March from 48.6 in February. This suggests Russian factories recorded their largest drop in activity since May 2020. A reading below 50 indicates that activity is declining. The poll also pointed to rising costs as manufacturers struggled to find needed parts, which they passed on to their customers through higher prices.

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The firm’s survey of U.S. manufacturers pointed to a pickup in activity during March, while its eurozone survey indicated activity grew at a slower pace than in February. Its survey of Chinese factories pointed to a drop in activity following fresh lockdowns to contain outbreaks of the Covid-19 virus.

The Russian survey suggests Western sanctions and the mass exodus of western businesses from the country are having their intended effect. According to the Yale School of Management, almost 500 international businesses have closed or suspended operations in Russia since the invasion of Ukraine.

“While our sanctions have had a significant impact on the Russian economy, the actions of these companies have also had a profound impact–here will be a long lasting impact on the Russian economy,” Deputy Treasury Secretary Wally Adeyemo said Tuesday.

 

Sanctions and the decisions made by Western companies have deprived many Russian factories of the parts they need to make their products. In early March, car maker AvtoVAZ halted production of its Lada automobiles, placing thousands of workers on leave.

Such a stoppage was once unthinkable. During Soviet times, AvtoVAZ erected a giant factory on the banks of the Volga River that was capable of nurturing a homegrown supply chain.

Today, the company is owned by French car maker Renault SA and the plant relies on a Renault factory in Romania for subassembly and components.

Economists expect Russia to suffer its deepest economic contraction since the early 1990s, when the collapse of the Soviet Union led to steep falls in manufacturing that lasted several years.

The European Bank for Reconstruction and Development on Thursday said it expects Russia’s economy to contract by 10% this year and then experience a period of stagnation as a result of an exodus of well-educated workers, and the loss of access to Western technologies under current sanctions.