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Industrial production strengthens to 3.7% YoY in May


According to Rosstat, industrial production growth accelerated to 3.7% YoY in May, from an exceptional low of 1.3% YoY in April 2012, beating the consensus figures from both Bloomberg (1.7% YoY) and Interfax (2.1% YoY). Seasonally adjusted, industrial output added a healthy 1.0% MoM, compared with 0.1% MoM SA in the previous month.

The detailed breakdown reveals that the growth in May was mainly driven by manufacturing, which rose 7.0% YoY (up from 3.6% YoY in April 2012) on the back of solid growth in the construction-related and automobile industries, as well as in the manufacturing of electric equipment. The growth in mining was negative 0.3% YoY (down from a 1.2% YoY increase in April), sliding into the red for the first time since October last year, with gas production down 10.8% YoY. Growth in utilities (electricity, water and gas distribution) recorded a light increase of 1.2% YoY (up from the 0.6% YoY decline).

The data suggests that economic growth accelerated in May, coinciding with the PMI Manufacturing numbers and stable growth in railway cargo turnover (3.9% YoY in May and 6.2% YoY in 5mo12). The IP reading indicates that internal demand continued to show robust growth. We believe that the retail sales and investment (especially, construction) data might also surprise to the upside later this week, confirming the above potential growth rate in internal demand. It is worth noting that the recent decrease in gas production implies a deterioration in exports that month. This is a negative sign for the rouble as weaker gas exports combined with lower oil prices might push trade and current account balances to shrink faster than the market is expecting.

The latest data reveals a rebound in industrial production growth which is likely to back up the CBR’s statement that the March-April moderation in IP was due to temporary and weather-related factors.

VTB Capital analyst

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