Russia: Industrial production posts surprise drop in July
August 15, 2016
Growth in Russian industrial production halted abruptly in July, contracting 0.3% year-on-year. The result marked the first decrease in production after three consecutive months of increase and also caught the markets off guard as analysts had expected slightly milder, but still positive, growth of 0.8%. July’s drop followed June’s solid 1.7% expansion—the strongest increase in 18 months.
In a note to the press, analysts at VTB Capital commented that, “we had expected IP growth to slow down, but not to the extent it did. Viewed from the monetary policy angle, this data surprise adds arguments in favor of the CBR’s Board of Directors easing at its September meeting, while disinflation is likely to be seen as ‘in line’ with expectations, declining to 6.8-6.9% y/y before the meeting.”
Production in the all-important manufacturing sector swung from a 1.6% increase in June to a 1.5% contraction in July, making it the main drag on industrial production. Conversely, mining and quarrying advanced from a 1.6% increase in June to a 1.8% expansion in July. Meanwhile, other sub-components turned out to be weaker in July: electricity, gas and water supply slowed to a 0.8% expansion (June: +2.0% year-on-year).
Data adjusted for seasonal factors showed that industrial production contracted 0.9% over the previous month in July. The sequential contraction was the largest since April 2015 and contrasted a 0.4% increase in June.
Despite the decrease, the trend continues to point to a slow recovery in the sector. The annual average variation in industrial production rose from minus 2.0% in June to minus 1.6% in July.
Author: Ricardo Aceves, Senior Economist