On 30 April the internet site gazeta.ru published an article by Andrei Illarionov, former economic advisor to the President. The title "A leap backwards" speaks for itself. The article shows that industrial production fell to its lowest point in February this year, a fall of 23.4% from the peak in December 2007.   The following month saw an increase of 3%. But it is still unclear whether this really indicates a rise in production or just the fluctuations characteristic of a depression.   

But barely had we finished reading this article when there was more bad news. In April the Federal Service of State Statistics' index of industrial production showed a further deterioration, a fall of 16.9% by comparison with the previous April. This was the most significant fall since February 2009 - 16%. It was also the biggest fall since production fell by 18% in 1994. Between January and April industrial production fell by 14.9% by comparison with the same period in the previous year. Although March saw a growth of 11% over February, there was a further fall in April of 8.1%.

Mining production figures remained unchanged between March and April at 11.8%.  There was a slight increase in the production and distribution of electricity and gas (by 0.3% to 2.6%).

As for manufacturing, there was a 20.8% fall in March by comparison with the previous year, and the April figure was 25.1%. The headlong downward spiral in manufacturing has continued and has spread to the production of gas and steam turbines, which fell in April by 60.1% and 90.1% respectively.

A preliminary report on fluctuations in GDP from the Russian Ministry of Economic Development for the first quarter suggests that there has been a decline of 9.5%. It is clear from this report that Russians have not yet felt the full force of the crisis. Real incomes and salaries have only fallen by 2.3%. Turnover in the retail sector has decreased by even less (1.1%), and activity in the service sector has fallen by 1.5%.

However, the prospects are far from rosy. In previous years the main engines of growth were wholesale and retail trade, vehicle repairs and motorcycles, household goods and items of personal use. In 2009 the picture will be very different. The Ministry's figures show a decline of 6.1% in value added in the wholesale and retail sectors.

Thus, a review of the wholesale sector leads to the conclusion that the current comparatively comfortable situation in the retail and service sectors will not last long. The situation in retail did not look so bad in the first quarter of 2009 because of the rush to stockpile durables in expectation of worse times to come.

The situation in the labour market is serious. According to the International Labour Organization there were 7.5 million people unemployed in March 2009. This represents 10% of the economically active population. Furthermore, as the Ministry report shows, the number of unemployed is likely to increase if people who are now working part time, on down time or taking unpaid leave proceed to lose their jobs. As of 18 March this year the total number of such employees was 1.2 million.

According to Evgeny Gontmakher, head of the Centre for Social Studies at the Russian Academy of Sciences, unemployment may reach 10 million by the end of 2009. This would mean that one in seven Russians of working age would be unemployed. But some officials are more optimistic. On 30 March Deputy Prime Minister Alexander Zhukov said that fewer people were signing on and that peak unemployment had passed.

Any review of the Russian economy and its problems, particularly employment, should bear in mind that the socio-economic situation of the country's many regions is very different. There are also many so-called "mono-industrial cities", where a single major enterprise provides employment to a large section of the population and life in the city depends on it.

Financial sector

"Bad debt" is often cited as one of the most serious threats in Russia at the moment. Indeed, Finance Minister Alexei Kudrin has suggested that a sharp upturn in non-performing loans might lead to a further deterioration in the economy. The Ministry's report shows that in the overall volume of loans to non-financial organisations the percentage of outstanding debts has increased from 2.1% on 1 January to 3.1% two months later - though Kudrin gave a much higher figure at a meeting with bankers.

This discrepancy was later explained by the Minister himself in an interview with the Russian newspaper Vedomosti on 22 April. "In Russia non-performing loans include defaults on specific payments. But in the West the methodology is more complex. To bring the Russian figure into line with international standards, it should be multiplied by 2.5". This means that as of 1 March the figure for credit defaults in Russia was 7.75%. Pyotr Aven, president of Alfa Bank, one of Russia's largest private banks, forecasts that by the end of this year this figure may reach 15-20%. Similar predictions have been made by the former deputy chairman of the Central Bank of Russia and the present deputy president of the Association of Russian banks Alexander Khandruev. The latter believes that a level of "bad debt" of 10-15% is critical for the stability of the entire Russian system.

The second threat, about which there was a lot of discussion last winter, concerned the foreign liabilities of Russian companies and banks. This is now mentioned much less often. But the threat has not gone away. The Minister for Economic Development and Trade Elvira Nabiullina announced on 19 March that the external liabilities of Russian companies and banks had increased from $175 billion to $500 billion in the last three years.

Russia's foreign debt payments for 2009 will amount to $152 billion. Companies and enterprises account for $86 billion of this. Russian banks owe another $60 billion. The foreign debts of enterprises and banks comprise liabilities on both loans and bonds they have issued. Many commentators believe it highly likely that Russian companies and banks will look for ways to restructure their debts.

At the end of May the head of the Russian Central Bank Sergei Ignatiev said that there would be no fall in the upper limit of the dollar-euro basket, which had been set at 41 rubles. On the day he said this it was fluctuating around the level of 37.7 rubles.

Experts warn of the likelihood of further devaluation, as a result of which the dollar-euro basket could rise to 45 rubles. From July of last year to February of this year, the ruble-dollar rate fell by over 50%, after which the ruble began to pick up again. As a result, the ruble is now 35% lower in value than it was last July.

Russia is nevertheless experiencing a period of temporary stability at the moment. The price of oil has risen to more than $60, and stock indexes have doubled. The question is how much longer this period of grace will last.