Russia's industrial output up by 1.8% through September

Russia's industrial output up by 1.8% through September
Fragile recovery in Russian industry continues
By bne IntelliNews October 17, 2017

Industrial output in Russia increased by 1.8% year-on-year in January-September 2017, RosStat statistics agency said on October 16.

Output recovery continued as the result for nine months exceeded that of 1.2% seen for the same period of 2016 and 1.3% growth seen in 2016 overall. Previously other indicators such as manufacturing PMI also showed recovery.

However, the recovery remained fragile as in September alone industrial output expanded by 0.9% y/y versus 1.5% seen in August and the consensus expectation of 1.5% growth (Reuters analyst survey). In calendar adjusted terms the output shrank by 0.4% month-on-month in September.

It can be expected that output will rebound towards the end of the year, given the strong link between state spending and industrial output and the spending seasonally soaring in November-December.

In September extraction and utilities slipped by 0.1% y/y, while manufacturing still reported growth of 0.7% y/y. In January-September overall extraction expanded by 2.8% y/y, manufacturing by 1%, and utilities by 1.7% y/y.

The decline in the extraction sector came after it benefited from the increase in natural gas and coal output in April-July due to high external demand, VTB Capital commented on October 17.

Analysts surveyed by Vedomosti daily on October 16 also noted the decline in gas output and suggested that lower numbers in September could be due to renovation works at the major Sakhalin-1 field and the base effect as in September 2016 oil companies rushed to increase output before the Opec+ freeze deal took effect

"We expect 4Q17 to see the same decline in oil output, while 1Q18 might see output growth improvements," VTB said.

UralSib Capital also believes that slower output in extraction is likely to remain in the short-term perspective. This, coupled with "relatively high ruble rate" will keep industrial output growth muted in the coming monhts, the analysts said on October 17.

Alfa Bank sees September's numbers as "very weak" as the number of the working days remained almost unchanged y/y and base effect did not play as strong as expected. This keeps the bank cautious on GDP outlook for 2017 that is reiterated at 1.4%, below the official target of 2%.

In manufacturing, the fastest double-digit growth in output in January-September was showed in some agricultural segments, in the car and machine building (including agricultural machines and tractors), and petro-chemical segments and refining.  

"The majority of consumer-oriented goods (computers, TVs, freezers and washing machines) slowed considerably," VTB notes, with the only exception being the output of passenger cars, which continued to fare well at 21.9% y/y increase in September.

The recovery in the car segment is supported by broadening consumer demand based on real wage growth, easier access to borrowing and the recently launched targeted stimulus package, according to the bank.

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