Today the Russian government has announced a 16.9% drop in industrial production in the year to April, which was the sixth consecutive month of contraction, exceeding forecasts by the banks.  The slowdown in industry has the potential to be politically catastrophic for Russia, as enormous sectors of the population (and entire regions) are employed by a relative small group of corporate and state business titans – many of which are now on the state’s lifeline.

Severstal, one of Russia’s largest steelmakers, has announced first quarter losses which Alfa Bank says may cause them to post significant debts in 2009, which may threaten their ability to attract new loans without violating Eurobond covenants.  The company is also experiencing troubles in its North American operations.  Gazprom has slashed its 2008 dividend to 1/7th of what it paid out the year before, while natural gas production has been cut by 24.3%.  Metals tycoon Mikhail Prokhorov, who now seems more interested in utilities, has compared the crisis to a 19th century painting by Ivan Aivazovsky (pictured), which “depicts people on the wreckage of a ship facing a high wave as dawn breaks after a night storm” – in reference to Russia experiencing the last, and most severe, wave of the crisis.

Interestingly, one of the hardest hit areas of the Russian economy has been automobile production, which sank by 55.9% in the year to April.  Why then, is this also the area that Prime Minister Vladimir Putin appears to be so interested in doing some more business?