(MENAFN- The Peninsula) Reuters
Moscow: Russia's drive to equip freshly mobilised troops and increase spending on its military campaign in Ukraine is helping the country's industrial sector weather the economic storm better than expected.
Russian industrial output fell just 2.6% on an annual basis in October, according to the Rosstat federal statistics service, an improvement from a 3.1% decline registered in September and ahead of forecasts for a 3.8% fall.
The improvement came despite Russia calling up more than 300,000 reservists - mostly working-age men - for the fight in Ukraine, and businesses reporting labour shortages and heightened economic uncertainty.
Russia's economy has defied early expectations of a possible 10% contraction this year under an unprecedented package of Western sanctions, an exodus of foreign investment and huge disruption to supply chains. The economy ministry now sees the economy falling by 2.9% this year.
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'The impact of mobilisation and military expenditure is clearly visible in industrial output, masking the decline in other civilian sectors,' said Dmitry Polevoy, head of investment at Locko Invest.
In an apparent example of military production boosting output, clothes manufacturing expanded by 11.9% on an annual basis in October, up from 5.6% in September and 2.9% in August. Production of 'workwear' - which includes military uniforms - was up 2.2-fold compared to the same month in 2021, Rosstat said.
'In all likelihood, these dynamics are connected with the fulfilment of military orders and production of uniforms for those who have been called-up,' said Olga Belenkaya, head of macroeconomic analysis at financial services company Finam.
A Reuters' analysis of Moscow's budget plans for the coming years shows Russia plans to further boost spending on its defence and security sectors, at the expense of schools, hospitals and roads.
Although details of military spending are not disclosed, Rosstat recorded a noticeable production increase in sectors that cover arms and ammunition production during October, Polevoy said.
Surveys, including by the Russian central bank, had shown a further decline in industrial output during the month. Evgeny Suvorov, economist at CentroCredi Bank, said the official data proving better than indicated by the surveys was a sign that military spending was making up for lost civilian output.
'Such a divergence between Rosstat data and survey results confirms the thesis that the output in manufacturing industries is now mainly being supported by military production,' he said.