Analysis: Russian mobilization could hamper economic recovery

  • Putin ordered a partial mobilization on September 21
  • Tens of thousands of people were conscripted or fled Russia
  • Early indicators suggest a drop in consumer demand in September
  • Analysts see mobilization hindering economic recovery
  • This content was produced in Russia where the law limits coverage of Russian military operations in Ukraine

MOSCOW, Oct 11 (Reuters) – Already plagued by Western sanctions, Russia’s economy now faces a more self-inflicted blow, with President Vladimir Putin’s military mobilization campaign threatening to undermine productivity, demand and recovery .

With hundreds of thousands of men drafted into the army or on the run, the uncertainty stifling investment is once again weighing on the economy, which has held up better than expected to Western reprisals over the Ukrainian conflict.

“The declaration of mobilization and the strengthening of geopolitical risk and sanctions are launching the second wave of the economic crisis,” said Evgeny Suvorov, an economist at CentroCreditBank, expecting Russia’s economic contraction to worsen over the course of the year. the last months of the year.

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Putin said last Thursday that retail sales had fallen in the last week of September and ordered his government to find ways to boost consumer demand. But there was no acknowledgment of a link to his sudden announcement of partial mobilization on September 21.

The central bank said on Tuesday that economic activity in Russia had slowed markedly in late September.

Household spending on non-food items for the week of September 19-25 fell 12.7% year-on-year, according to data from SberIndex, the statistics unit of major Russian lender Sberbank, compared with a 9, 2% the previous week. .

From September 26 to October 2, spending fell 12.2%.

“We expect to see the decline in retail sales return to the double-digit zone in the coming months, especially in expensive and non-food goods,” said Sofya Donets, economist at Renaissance Capital. In monthly terms, retail sales only recorded a double-digit decline in May.


Russian authorities have steadily improved their forecasts since the Economy Ministry in April predicted a GDP contraction of more than 12% this year as rising oil prices and a widening current account surplus – the difference in value between exports and imports – helped Russia limit the fallout from the sanctions.

Analysts polled by Reuters late last month expected GDP to contract 3.2% this year, against an Economy Ministry forecast of a 2.9% decline. Next year, analysts expect a further 2.5% drop in GDP, much more pessimistic than the 0.8% drop forecast by the ministry.

And at a time when Moscow is stepping up its military campaign in Ukraine, the relative recovery may now be in jeopardy.

“The main consequence of mobilization is the loss of human capital,” said veteran economist Natalya Zubarevich. “A wild growth in the uncertainty of everything and most frightening of all – a lack of understanding as to when there will be light at the end of the tunnel.”

The ultimate duration and extent of the mobilization are not yet known in this vast country of approximately 145 million inhabitants. Russian media have estimated that 700,000 people have fled since the mobilization was announced, although the Kremlin denies this.

Dmitry Polevoy, chief investment officer at Locko Invest, estimated that 0.4% to 1.4% of Russia’s workforce fled or were among the additional 300,000 men to be called up for battle.

Polevoy said the mobilization was a blow to Russia’s demographics, labor market and investment climate at a time when access to modern equipment and technology is shrinking.

“It used to be possible to rely exclusively on human capital to pull the economy, but now some of that productive-age human capital is being mobilized and some is leaving,” Polevoy said.

The chaotic organization of the mobilization left even some departments scrambling to secure adjournments for their most crucial personnel. Small businesses could be the hardest hit.

“Worst of all will be for small and medium-sized businesses that have no ability to lobby for deferrals and where the loss of two to three key employees can kill the business,” Zubarevich said.

And with the central bank’s rate-cutting cycle seemingly coming to an end as inflation threatens to pick up, the potential economic shock creates a new headache for policymakers.

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Reporting by Darya Korsunskaya; additional reporting and writing by Alexander Marrow; edited by Andrew Cawthorne

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