Russian labor shortage laid bare as unemployment drops to record low

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Russia’s unemployment rate dropped to a record low 3.3% in April, data showed on Wednesday, highlighting the labor shortage that is stifling economic growth, while other indicators painted a mixed picture.

Russia was hit with a barrage of Western sanctions as it invaded Ukraine in February last year, ultimately leading to a 2.1% gross domestic product contraction in 2022, a better-than-expected decline touted by Moscow as evidence of its economic resilience.

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GDP rose 3.3% in April, the economy ministry estimated, while retail sales and industrial output demonstrated strong growth in annual terms, according to statistics service Rosstat, benefiting from the low base effect from last year.

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Month-on-month data was not so forgiving. Retail sales, a key gauge of consumer demand, fell 0.1% compared with March and industrial output dropped 5.0%. Excluding seasonal factors, economic growth slowed to 0.2% in April, the ministry said.

Meanwhile, first-quarter corporate profits slumped 22.3% year-on-year and capital investment stood at just 0.7%, down from 13.8% in the same quarter a year ago.

Rising military production and huge state spending have kept Russia’s industry buzzing along in particular, limiting the economic hit, but a return to long-term prosperity remains a long way off, even according to Russia’s own economic forecasts.

One major issue is the labor market, which the central bank has repeatedly warned poses inflationary risks, even as government officials have presented high employment to the people as a mark of economic health.

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The shortage of workers, combined with a weak rouble and general uncertainty, is one of the main factors holding Russia back from industrial growth, according to Sergei Tsukhlo, an economist at Russia’s Gaidar Institute.

He said Russian industry was experiencing its highest level of staff shortages since 1996.

Russia’s market has changed drastically since the sanctions war began, Tsukhlo said, with mass-market and expensive brands alike leaving the country.

“(They) could have been replaced by Russian light industry products, but there is no one there to produce them,” he said. (Reporting by Alexander Marrow and Darya Korsunskaya; Editing by Alison Williams)