Russian industrial output shrank 10.8 per cent in November and wage arrears doubled, raising the spectre of recession for the once-buoyant economy.

Many of Russia’s biggest, export-focused firms have been forced to slash production as global demand drops and lower prices make some plants unprofitable.

These have included aluminium giant UC RUSAL and the world’s top producer of nickel and palladium, Norilsk Nickel.

“It was so bad that I had to take a second hard look at the data to see if there wasn’t a typo,” Tim Ash, economist at RBS, said of the output data, adding it would “suggest that the real economy may actually move into recession in 2009”.

Recession has turned into a politically thorny issue in Russia, where economic growth has hovered around seven per cent for the past five years and contraction was last seen a decade ago.

Deputy Economy Minister Andrei Klepach this week became the first government official to acknowledge that the £1 trillion economy is shrinking, prompting denials from both Prime Minister Vladimir Putin and Finance Minister Alexei Kudrin.

Underlining the collapse in demand for Russian exports, the head of the railways monopoly said rail freight shipments fell by 30 per cent in November. Vladimir Yakunin told reporters a deeper slump was likely in December.

The downturn exceeds freight industry expectations. The head of Russia’s largest private freight operator, Globaltrans, had forecast a 10-12 per cent downturn in November, largely because of plummeting metals exports.

This week’s data showed extraction of raw material contracting 5.8 per cent on the month, as iron ore production halved.

Manufacturing shrank 15.3 per cent in November, with sharp falls seen in the production of fertilisers and a range of goods used in industry or construction, such as cement and metal-cutting machinery.

Year-on-year output shrank 8.7 per cent, its steepest decline in a decade. The official data chimed with numbers leaked to Interfax on Monday and was in line with the Economy Ministry’s forecast that production will grow just 1.9 percent for 2008 as a whole.

The manufacturing sector was also responsible for the bulk of the wage arrears – 40 per cent of the total 7.8 billion roubles (£180 million). It was followed by transport, construction and agriculture.

In all, 600,000 people or two per cent of the workforce, are affected by the wage arrears, which have doubled from October’s 3.7 billion roubles to hit a near three-year high.

The vast majority of arrears were caused by lack of funds at the companies concerned as the global credit crunch tightens, while around five per cent were due to delayed payments from the federal or local budgets.

Russia last experienced a recession a decade ago during the 1998 financial crisis.