Russia’s Industrial Activity Slumps to Lowest Level Since 2022

Russia’s industrial sector posted its steepest decline in more than two years in July, as new data revealed mounting strain across manufacturing. A sharp drop in key indicators points to a weakening wartime economy increasingly burdened by labor shortages, sanctions, and structural inefficiencies.

According to S&P Global’s Purchasing Managers’ Index (PMI), Russia’s overall manufacturing PMI plunged to 48.2 in July, down from 52.4 in June. A reading below 50 indicates contraction. It’s the lowest level since August 2022, when international sanctions and economic uncertainty were at their peak in the wake of Russia’s full-scale invasion of Ukraine.

More significantly, the manufacturing output sub-index — a more direct measure of production activity — fell even further to 47.0, suggesting that output is shrinking faster than headline figures suggest. S&P Global reported that output, new orders, and employment all dropped in tandem, reflecting broad-based deterioration.

“The downturn in the manufacturing sector was the sharpest recorded for nearly two years,” S&P said in its analysis. “Firms often attributed the fall in production to weaker demand conditions and reduced new orders from clients.”

The data comes amid rising inflation, a labor crunch fueled by mobilization and war casualties, and tight monetary policy. The Russian central bank has raised interest rates multiple times in recent months to combat inflation, which hit 7.6% year-on-year in June, well above the target rate. These hikes are adding pressure to already-fragile business conditions.

While defense-related production remains artificially elevated, the broader economy is losing momentum. Analysts say this bifurcation is unsustainable.

“You’re seeing the war economy consuming all available resources,” said Alexandra Prokopenko, a former central bank advisor now at the Carnegie Russia Eurasia Center. “But civilian sectors are starting to hollow out.”

Sanctions continue to disrupt supply chains, forcing companies to rely on parallel imports through third countries, often at higher costs and lower reliability. At the same time, the ruble has remained volatile, recently trading at around 81 to the dollar, increasing pressure on import-heavy industries and squeezing margins across manufacturing.

Fiscal conditions are also tightening. With oil and gas revenues under pressure from Western price caps and declining demand from India and China, the Kremlin faces shrinking fiscal space and rising war expenditures.

As industrial contraction deepens, particularly in manufacturing, questions are growing about how long Russia can sustain economic mobilization without triggering broader systemic breakdown.