Russia’s Wartime Economy Pushes Companies Toward a Four-Day Workweek as Civilian Sector Declines
Despite the defense sector’s continued growth, warnings of an impending recession are getting louder
Доступно на русскомDate13 Aug 2025AuthorEditors
It’s a strange thing: the economy is growing, albeit more slowly than in 2023–2024 (over five months, GDP increased by 1.5% year-on-year), but warnings of an impending recession are getting louder, even ministers are saying so. Unemployment is at a record low — the country lacks enough workers, yet large enterprises are switching employees to a four-day workweek or sending them on leave, and some are even laying people off. How does all this fit together?
Excess day
Among those who have introduced a reduced workweek are Cemros, Russia’s largest cement producer, several automotive companies (Kamaz, GAZ, and LiaZ), the Chelyabinsk Electrometallurgical Plant, and Uralasbest. The country’s main automotive group, AvtoVAZ, will consider switching to a four-day week starting at the end of September, and the largest agricultural machinery manufacturer, Rostselmash, switched to it, then later postponed employee vacations from August–September to June. Some engine manufacturers also switched to a four-day week.
“There is some growth… of hidden unemployment, that is, workers in so-called downtime, employed part-time, or at risk of being laid off,” admitted Vladimir Putin on August 12. According to him, since the beginning of the year, the number of such hidden unemployed has doubled — to 199,000. As usual, he reminded that overall unemployment is at a record low (2%), but “still, we must sense the trends, catch them, and respond accordingly so as not to let the economy overcool.”
News of layoffs is becoming more frequent. The Ural Pipe Works carried them out in May, and in July, the authorities of Sverdlovsk Oblast discussed, how to prevent layoffs at regional enterprises and their switch to a reduced workweek due to “changes in the economy.” The number of people employed in retail has fallen over the year — largely because of the mass closure of car dealerships, noted the Central Bank of Russian Federation. The list could go on. According to the Central Bank, over six months, the share of companies planning to reduce staff grew by two-thirds — from 6.9% in January to 11.5% in July.
No demand
The main reason for switching to a reduced workweek is a drop in demand (all the companies mentioned cited this). The war has taken away some of the economy’s resources and at the same time created a huge state order. The mismatch between supply and demand led to accelerated inflation. To slow inflation, the Central Bank raised the key interest rate (now at 18%), making loans and deposits expensive. For people and companies, it became more profitable not to borrow and spend, but to save. As a result, people are putting money into deposits and borrowing less to buy smartphones, refrigerators, to renovate or buy apartments, and business has effectively stopped making new investments and is only continuing those already started.
Sales of household appliances and electronics are falling this year; in the first quarter, the number of purchases was 19% lower than a year earlier, and in monetary terms, sales fell by 8%, estimated analysts at T-Bank. Dmitry Alekseev, founder of one of the largest sellers of such goods, the DNS Group, wrote, that he had not seen anything like this in his 30 years in the market: “There have been times when the market fell in units, in dollars, even in real rubles adjusted for inflation. But for the market to fall just in [nominal] rubles, I don’t remember that in all 30 years.” As a result, with the strengthening of the ruble, many household appliances and electronics — for example, smartphones, TVs, vacuum cleaners — have barely changed in price or even become cheaper over the past year, rejoiced Central Bank Chair Elvira Nabiullina.
Rostselmash’s problems are a consequence of, among other things, loan rates, said its co-owner Konstantin Babkin. Such rates are unaffordable for farmers, just as market mortgages are for ordinary people. Babkin called last year the worst for the industry in a decade, but this year, Rostselmash’s sales have fallen by another third, and dealers have accumulated a six-month stock of products.
There have been times when the market fell in units, in dollars, even in real rubles. But for the market to fall just in [nominal] rubles, I don’t remember
The cancellation of preferential (subsidized) mortgages led to a drop in new housing sales: according to data from Dom.RF, in the first half of the year these sales in square meters were 26% lower than a year earlier. This was followed by building materials, furniture, and so on, as well as the metallurgical industry (its main consumer is construction, not the defense industry). Economist Nikolay Kulbaka believes that metallurgists may also switch to a four-day week.
The same is true in the auto industry. The analytical agency Autostat estimated that there are half a million cars in stock, about 100,000 of them Lada. Hundreds of thousands of unsold foreign cars are a problem for AvtoVAZ: the Chinese are offering huge discounts, comparable to the base price of a new Lada Granta — “it’s impossible to just give cars away,” complained company president Maksim Sokolov. Kamaz director Sergey Kogogin spoke in the same vein: there are about 40,000 Chinese trucks in stock, and “if you go by the current forecast… you could just stop producing altogether, all these trucks are already here.”
According to data from Autostat, 651,000 new passenger cars were sold in Russia over seven months — 24% less than a year earlier. The situation with trucks is even worse: sales of heavy commercial vehicles collapsed by 57%, and medium commercial vehicles — by 44%.
It’s better to work less than to work for the warehouse — it’s already overflowing.
Is this a crisis?
So, has a crisis begun? It depends on how we look at it.
Although the share of companies planning to cut staff has grown, twice as many plan to hire new employees. 65% of Central Bank–surveyed enterprises expect to maintain their workforce, and 23% predict growth. That’s why unemployment keeps hitting new lows; in May–June, it was 2.2%. Wages continue to rise, though not as quickly as in 2023–2024. In May, the average salary was 14.5% higher than a year earlier; in real terms (adjusted for inflation), that means a 4.2% increase. The same is true for the economy as a whole: it is slowing down, but still growing.
The problem is that there aren’t enough resources for everyone. In such a situation, for those who are now on the rise to keep growing, someone else must free up resources for them. That is exactly what is happening. The government-aligned think tank Center for Macroeconomic Analysis and Short-Term Forecast (CMASF), discussing investments, points to “not the most favorable structural shift — an outflow of development resources from the domestically oriented civilian private sector.” That’s why in some industries there is still, if not a boom, then growth, while in others problems are snowballing. As a result, there are convincing arguments for almost any assessment of the state of the Russian economy — from “everything is going to hell” to “everything is fine, but we’ve overheated and need to cool down a bit.”
The pessimist’s view: “The fact that people are switching their workers to a four-day week means there’s no sales, there’s no point in producing, much less ramping up [production]. That is, production cuts have begun, and this is no longer a soft cooling, it’s already a recession” (Igor Lipsits, Doctor of Economics, in a conversation with IStories).
The optimist’s view: “The introduction of a four-day workweek is linked to a temporary drop in demand for the products of certain companies... This reflects a reduction in overheating in the economy. We see no systemic risks; this phenomenon is temporary, there have been similar episodes before… after which companies returned to their standard schedules” (Aleksei Zabotkin, Deputy Chairman of the Central Bank, quoted by Interfax).
Two worlds
These two perspectives reflect the split of the economy into two parts, which are drifting further apart. One, linked to the defense industry, receives budget money and continues to grow rapidly. The other, civilian, is stagnating or already declining.
The whole economy is the “average temperature in the hospital.” It is, as was said, cooling: growing, but more and more slowly, which is what the authorities aimed for and what is inevitable, given the exhaustion of resources. The fact that some sectors are slowing down faster is normal, explained Alfa-Bank chief economist Natalia Orlova.
As a result, according to the results for the half-year, output of “other transport equipment and machinery” grew by 35%, “finished metal products” by 14%, computers, electronic and optical products by 14% and 15% (these are the three main military industries), and workwear by 28%. But production of TVs and washing machines fell by almost 30%, refrigerators by 12%, footwear by 29%, clothing by 3%, and many types of food (groceries and drinks, meat and sausages, fish and canned goods) by 1–3%. Output of building materials (chipboard, tiles, blocks, cement, brick, etc.) fell by 5–20%, various agricultural machinery by 9–14%, passenger cars by 2% (the sector never recovered from the collapse of 2022), and trucks by 24%. “Except for the military part of the economy, everything else is around zero or negative,” summarizes Moscow State University professor Natalia Zubarevich.
In the civilian sectors, growth stopped in mid-2023, noted at the start of the year by CMASF. Now it states a decline: excluding “sectors with a dominant presence of defense production,” output in the second quarter was falling by 0.3% per month, and in the civilian sectors it was below last year’s level for five months in a row. In June — by 0.9%.
Business surveys show a sharp slowdown in business activity.
What are these surveys?The business climate indicator calculated by the Central Bank in July fell from 3 to 1.5 points (note: above zero means business activity is growing, below means it’s declining). This is the lowest level since October 2022.
The PMI Composite index, reflecting activity in industry and services and calculated by S&P Global, has been fluctuating between growth and decline since spring (the threshold is 50 points). In July, it dropped to 47.8 points (48.5 in June), mainly due to weak demand and a drop in new orders. This survey records a reduction in employment — but not in manufacturing, in services.
The business confidence index calculated by Rosstat in manufacturing hit zero: minus 0.3 in May, 0.5 in June, and exactly zero in July. In extraction, it’s been negative since December.
Perhaps this is what Economic Development Minister Maksim Reshetnikov meant when he said at the main Putin economic forum — SPIEF — about recession risks. The statistics show only a slowdown in the economy, but these statistics appear with a lag, he argued: “All our numbers are a rearview mirror. According to current business sentiment, we… already seem to be on the verge of entering a recession.”
It’s hard to draw conclusions about such a “dual-circuit” economy, as Orlova put it — the labor market will be the arbiter: the slowdown in economic activity should show up in employment statistics.
Switching to a four-day week is an attempt to weather the storm, to hold out until better times, when demand recovers. Maybe the war will end and the burden on the economy from the defense sector will ease. Or the Central Bank will lower the key rate and business will have an easier ride. After every cold spell comes summer, reassured Finance Minister Anton Siluanov.
But we still have to get there, and for now, we have to survive somehow. Layoffs are a bad solution. The labor shortage will persist for at least several more years, until 2030 or even longer. If demand recovers, where will automotive and other companies find workers to replace those laid off? Reduced hours, vacations — these are compromises that, in the words of the Central Bank, optimize costs and retain staff during periods of falling demand. Babkin put it this way said: for Rostselmash, this is a way to avoid layoffs and a long recovery if demand for machinery picks up: “I think this is temporary... Our task now… is to get through this period.”