Russian industrial production picks in July with 3.9% expansion

Russian industrial production picks in July with 3.9% expansion
Russian industrial production picks in July with 3.9% expansion / bne IntelliNews
By bne IntelliNews August 17, 2018

Russia’s industrial production improved in July, rising to 3.9% y/y after taking a hit a month earlier when it fell back to 2.2% in June, Rosstat reported on August 15.

While Russian services have been growing strongly all year, industrial production growth has been fragile and although it is expanding it has failed to gather any momentum.

However, there were improvements registered almost across the board in July and industrial production over the first seven months of this year was up 3.1% y/y.

There was very good news from the all important manufacturing sector where output grew 4.6% y/y in July versus a more modest 2.2% y/y the previous month and that added up to a 4.1% y/y gain in 7m18.

“However, a closer look at the data shows that almost all of this growth was driven by the manufacturing sector, most of that due to one extra working day in July 2018 v July 2017, and by the mining industry on the back of strong flow of natural gas exports (gas production up by 5.4% y/y),” BSC Global Markets chief economist Vladimir Tikhomirov said in a note.

The results are in contrast to the last IHS Markit manufacturing PMI survey that recorded the third month of falls in manufacturing activity in July, down to 48.1 points and below the 50 no-change score. The over all composite PMI index was a meagre 51.7 points, held up above the no change result only by stronger growth in the services component that was up to 52.8 points in July holding the overall score up.

These two surveys are now in conflict, which underscores the fact that while Russia’s recovery is continuing, it remains fragile.

But the broader industrial production results were lifted by several sectors: Russia is benefiting from strong commodity prices especially in oil and metals where the leading companies are earning outsized profits.

Amongst the sectors mining and quarrying industrial output rose 3.2% y/y, supported by increased oil production up 2.4% y/y versus 1.5% y/y growth in June due to the amended OPEC+ deal with gains also seen in gas production (up 5.4% y/y) and coal output (up 5.3% y/y), Sberbank CIB said in a note. All-in-all mining and quarrying output expanded 2.1% y/y over 7m18.

The oil sector is booming on the double plus of a devalued ruble, down 16% YTD, that reduces costs, and high average oil prices of over $75 a barrel that lifts profits. State-owned oil major Rosneft, for example, has made more profits in the first quarter of this year than in all of 2017 and the sector as a whole is on track to produce a record volume of oil this year.

The output of wood and paper products, chemicals, metals and metal products, electric equipment and home appliances, cars and other transportation equipment all rose. Food products were more mixed, while the production of construction materials continued to slide. The production of electricity, gas and heat rose 1.8% y/y in July and 1.9% y/y in 7m18; water supply, sewage and waste management climbed 1% y/y in July but was down 1.6% y/y in 7m18, Sberbank reports.

“After the setback in June, when IP contracted -0.5% m/m (adjusted for seasonality and calendar factors), July’s data sees economic activity up +0.3% m/m SWDA. The pick-up in annual growth rates is even more visible, going from +2.2% y/y in June to +3.9% y/y. On our estimates, up to 1pp of the improvement in the growth rates could have been contributed by the one additional working day in the reported month compared with the base month,” Alexander Isakov, chief economist with VTB Capital (VTBC) said in a note.

Data

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