Retroactive revision of Russian industrial output shows strong growth, raises eyebrows

Retroactive revision of Russian industrial output shows strong growth, raises eyebrows
By bne IntelliNews June 19, 2018

Russia's statistics bureau Rosstat has significantly revised its previous series on industrial output, with industrial growth rate increasing by strong 1.4pp year-on-year on average in the period of January 2017 and April 2018, the agency reported on June 18.

The result surprised and seemed to catch many analysts by surprise. “Revisions are normal, but when they are this big it makes Rosstat look unprofessional,” one analyst commented in a note to clients.

The largest upgrades recorded for the months of January 2017 (5.6% y/y vs 2.3% previously), August 2017 (4% y/y vs 1.5%), September 2017 (3.5% y/y vs 0.9%) and April 2018 (3.9% y/y vs 1.3%).

The new data suggests that Russian industry expanded by 3.2% y/y through May (previous data put growth at just 1.7% y/y through April) and was primarily driven by manufacturing (4.4% y/y in January-May). 

"The massive revision of industrial production data is unusual and casts doubts over reliability of Rosstat's statistics," BCS Global Equity commented on June 19, suggesting that "the prime reason for the revision is new information on classified, military-related manufacturing output, although this cannot be seen in the published data."

Rosstat has previously been under fire for the accuracy of its data from both the government and the analysts. The bureau explained that most recent major changes to the series were due to the incorporation of newly updated data from both large companies as well as SMEs. 

BCS argues that since most significant changes occurred in the manufacturing sector where SME share is negligible, the changes point to the addition of classified, military-related data.

"We also need to point out an amazing coincidence: in the new series, Rosstat, which as of last year reports directly to the Economy Ministry, upgraded its industrial growth estimate for 2017 from 1% y/y to 2.1% y/y, the latter being the last version of the Ministry's own estimate for industrial production growth before the official data was released," BCS notes.

Aton Equity commented on June 19 that although "strong industrial production data is a positive surprise for the markets," the volatility of the Rosstat data "raises questions, and potentially renders the monthly figures a less relevant indicator of economic activity."

VTB Capital analysts have long been wary of official macro data and have been running their own indices of visible output (IVOs). Despite the fact that manufacturing growth in 2017 has been revised from previous 5.6% to almost 9% growth, VTB finds that "this development agrees with the conclusions we drew when exploring IP and building the IVOs".

While manufacturing output continues to be volatile driven by swings in the output of military goods and items with a long production cycle, it is no longer oscillating around zero growth, demonstrating more robust and upbeat dynamics, VTB argues. 

"Our Manufacturing IVO saw a marked recovery from 2016, as did real wages, with the expansion reaching 10% y/y in 2017," the bank notes.

 

Data

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