Page 44 - bne IntelliNews Russia OUTLOOK 2025

5.0 Real Economy
Companies that have done very well because of increased state spending are most at risk from high interest rates and the coming slowdown. As of June, the highest interest-to-profit ratio was in the mechanical engineering sector, as well as wood processing, leather production, automobiles and metals. In several sectors, including construction and coal mining, the return on working capital (i.e. the ratio of profit minus losses to equity) was lower than the interest on loans.
The CMASF, which has long opposed high interest rates and which has connections to Defence Minister Andrei Belousov, recently reached the counterintuitive conclusion that high rates are driving inflation more than increased salaries. Almost 19% of the economy (when measured by revenue) is threatened with bankruptcy due to interest rate rises in 2025, it said, with the risk highest in telecoms, trade, transport, construction and heavy engineering.
“As a result, the interest rate is a powerful de-stimulator for investment, which means less increase in supply (and with it, a decline in inflation) in the future,” the CMASF concluded.
5.1 Industrial production and PMI
Industrial production in Russia is being driven by the war economy and has been booming. However, thanks to record-high real disposable incomes climbing to a record 9.6% in July, the civilian part of the economy is also doing well. President Putin has specifically highlighted that Russia needs both guns and butter and should balance investment into both parts of the economy.
That is why he hired his former economic advisor, Andrei Belousov, as Defence Minister, someone that has no experience in military affairs whatsoever; his job is to be an economic manager to run the military industrial complex and connect it to the real economy for long-term sustainable growth. Actual military matters are being managed by the generals.
The slowdown was already visible in September, when Russia's manufacturing sector PMI contracted, marking the first decline in 28 months, as weak demand, supply chain disruptions and material shortages hampered production.
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