It has been almost two weeks since Russia’s economy entered a recession but even then there were things you could point to in the latest economic news that weren’t so bad.

The 4% drop in economic output between July and September was less than the 4.5% contraction analysts had expected.
The contraction was driven by a 22.6% plunge in wholesale trade and a 9.1% drop in retail trade.

On the bright side, construction grew by 6.7% and agriculture by 6.2%.

But the reality is worse than it appears. Over the weekend the Washington Post pointed out there are signs the Russian economy is heading into a deep hole.

Recent figures show the situation has worsened considerably since the summer when, buoyed by a steady stream of oil and gas revenue, the Russian economy seemed to stabilize. Figures released by the Finance Ministry last week show a key economic indicator — tax revenue from the non-oil and gas sector — fell 20 percent in October compared with a year earlier, while the Russian state statistics agency Rosstat reported that retail sales fell 10 percent year on year in September, and cargo turnover fell 7 percent.

“All objective indicators show there is a very strong drop in economic activity,” said Vladimir Milov, a former Russian deputy energy minister who is now a leading opposition politician in exile. “The spiral is escalating, and there is no way out of this now.”…

…economists and business executives said the headline GDP figures did not reflect the real state of the Russian economy because the Russian government effectively ended the ruble’s convertibility since the sanctions were imposed. “GDP stopped having any meaning because firstly we don’t know what the real ruble rate is, and secondly if you produce a tank and send it to the front where it is immediately blown up, then it is still considered as value added,” said Milov, who wrote a report explaining the situation for the Wilfried Martens Centre for European Studies published this month.

And it’s not just the sanctions that are having an impact. There are two other factors connected directly to the war in Ukraine that are dragging the economy down. The first is the mobilization itself. It was necessary, from Putin’s perspective, to prevent an even more embarrassing collapse in the four regions he recently annexed. But pulling 300,000 working age men out of useful work in the economy take a toll.

Interviews with oligarchs, business owners and employees show that though the number of conscripts and émigrés represents a fraction of Russia’s 72mn-strong workforce, the impact of the mobilisation on the country’s economy has been disruptive and is likely to hit longer-term growth. The Financial Times chose not to disclose the names of executives and staffers interviewed for this story because of possible reprisals from the authorities.

The mobilisation push has created the biggest labour shortage in Russia since 1993, according to a Gaidar Institute study this month. In the survey of business, most respondents said they would be unable to increase production to keep up with demand, while others said they expected production cuts and decline in output quality…

Despite the disruption, the executive has decided not to lobby for an exemption for his workers because “it can backfire very easily”. “You ask for 10 people to be exempt, and you get asked to list 30 people who can be mobilised in reserves.”

In addition to 150 employees officially mobilised, several others quit their jobs preemptively, only giving notice once they had crossed the border into central Asia, he added.

So the mobilization of 300,000 men put a dent in many businesses but that doesn’t include another 700,000 to a million who have left the country since the war started.

According to one source, almost 1 million people have left Russia since the beginning of the mobilisation. The second source, in the administration of the President of the Russian Federation, reports that between 600,000 and 700,000 Russians have left the country. The magazine’s source emphasised that it is not yet clear what percentage of people left the country as tourists.

That’s one problem. The other problem is that the Kremlin is already leaning heavily on companies to supply more materials at a discount in order to keep the war effort going. Companies have multiple reasons not to complain about this but the bottom line is that it’s going to kill their bottom line.

One Moscow businessman with connections to the defense sector said a quiet mobilization of the Russian economy had already been long underway, with many entrepreneurs forced into producing supplies for the Russian army but fearing to speak out against orders at cut-price rates.

“This became necessary right from the very beginning when the war began,” the businessman said, speaking on the condition of anonymity for fear of reprisal. “The main mass of business is silent. If you say you are making supplies or weapons for the Russian state then you could have problems abroad.”

Putting all of that together you get an economy that is already struggling and heading for worse trouble at the end of this year and next year. That’s a problem for Russian citizens but it’s also a big problem for Putin’s war effort. As Bloomberg reported last month, Russia is already reduced to stripping imported washing machines for parts.

Armenia imported more washing machines from the European Union during the first eight months of the year than the past two years combined, according to data compiled by Bloomberg from the EU’s Eurostat database. Kazakhstan imported $21.4 million worth of European refrigerators through August, more than triple the amount for the same period last year.

Kazakh government data meantime show a jump in refrigerators, washing machines and electric breast pumps being shipped into Russia…

European officials familiar with the figures say they worry at least some of the goods and their components may be finding their way into military use, and are closely tracking the rise in exports to countries on Russia’s periphery.

Putin is clearly betting that cutting off power will cause Ukrainians (and Europeans) to give in first but his own ability to sustain this is quickly fading.