Shortened workweek poses no concern for the Central Bank's perspective
In the face of a declining Russian car market and decreased demand for certain products, several major companies, including automakers like AvtoVAZ, GAZ, KamAZ, and others in heavy industry and construction materials, have switched to or are considering a permanent four-day work week.
According to data calculated using the Electronic Passport of the Vehicle (EPTS) registrations provided by AO "Industrial Consulting", the Russian car market has seen a significant drop in sales, with AvtoVAZ reporting a potential 25-40% sales fall. This decline, along with a surge in imported foreign-produced cars and price dumping by imported brands, has led to an inventory of around 400,000 unsold cars in Russia.
The temporary switch to a four-day work week in some enterprises, including the Gorkovsky Automobile Plant, "KAMAZ", and the Chelyabinsk Metallurgical Plant, is a direct response to this drop in demand. "Rostselmash" was the first to implement this change, starting at the end of March this year. The Chelyabinsk Electrometallurgical Plant will transition to a four-day work week starting September 1.
The Bank of Russia does not see systemic risks in some enterprises temporarily switching to a four-day work week, with Deputy Chairman Aleksey Zaborotkin reporting that this phenomenon is temporary. However, the long-term impacts on the Russian economy could be significant.
Reduced industrial production, hidden unemployment, wage pressure, and broader economic stagnation are potential long-term impacts if companies permanently adopt a four-day workweek due to decreased demand in certain industries. Decreased production capacity, as a result of lower working days, worsens supply deficits and limits economic growth prospects.
Hidden unemployment and labor inefficiency arise as companies reduce working days and cut employment covertly, dampening labor productivity and consumer purchasing power. Wage reductions and consumer spending are further suppressed, creating a feedback loop of reduced sales and production.
Budget deficits and fiscal strain are also a concern, with economic contraction and lower tax revenues from shrinking industrial sectors leading to ballooning government fiscal deficits. Sectoral adjustment and structural shifts are necessary to address the sustained adoption of shorter workweeks, including a shrinking consumer base and disrupted supply chains in industries hit by sanctions and changing market dynamics.
Renat Tyuktaev, deputy general director for new car sales at "Avilon", estimates an optimistic scenario for 2024, predicting an interval between 1.2 and 1.3 million units of new light vehicles sold. However, the Ministry of Industry and Trade reports a 25.7% year-on-year decrease in sales of new light vehicles and LCVs in the first half of the year, amounting to 575,500 vehicles.
"Autostat" predicts a record high of 1.57 million new light vehicles sold in Russia in 2024, a 48.4% increase from 2023. However, the final decision for "AvtoVAZ" to switch to a four-day work week will depend on market trends and economic factors. No specific timeframe is given for the implementation of the four-day work week at AvtoVAZ factories, which are currently five days a week.
In summary, the permanent adoption of a four-day workweek in key Russian industries due to decreased demand signals a broader economic headwind, leading to diminished industrial output, labor underutilization, wage pressures, and fiscal stress. This may entrench economic stagnation and complicate recovery efforts unless offset by structural reforms or an uptick in demand.
Companies in the heavy industry and construction materials sectors, such as AvtoVAZ and GAZ, are considering a permanent four-day work week due to the declining Russian car market and reduced demand for certain products. This could lead to concerns in the finance sector, as reduced industrial production, hidden unemployment, and wage pressure may contribute to economic stagnation and fiscal stress.
