According to Rosstat, industrial production growth decreased to 1.9% YoY in June, from 3.7% YoY in May, lower than the consensus from both Bloomberg (3.2% YoY) and Interfax (3.6% YoY). Seasonally adjusted, industrial output was at a standstill, with a zero growth MoM.
The detailed breakdown reveals that the slowing growth in June was mainly driven by manufacturing, which added 3.4% YoY (around half the 7.0% YoY in May) on the back of weakening growth in the construction-related and automobile industries, as well as in the manufacturing of metals.
The growth in mining was a slightly positive 0.2% YoY (up from the 0.3% YoY decline in May), with gas production continuing to slide, down around 10% YoY. The growth in utilities (electricity, water and gas distribution) advanced to 2.1% YoY (up from the 1.2% YoY increase in May).
The slowdown in economic growth last month coincided with the PMI Manufacturing numbers and June’s disinflation in railway cargo turnover (to 1.1% YoY in June from 3.9% YoY in May). The key story of the past few months remains the same: weak export demand (especially, for gas and steel production) as the global economy slows down, negatively affecting industrial production growth rates. The manufacturing reading was also dragged down by the base effect in car production and, interestingly, by weakness in construction-related output. This is the first warning sign of cooling investment demand, which might be revealed in weaker investment data for June (to be published later this month). Hence, we are reiterating our cautious view on real GDP growth: at 3.5% YoY this year and 2.0% YoY next year.
At the same time, June’s slowdown in industrial production is unlikely to alter the CBR’s stance significantly at the next policy meetings as we see inflation being a key driver for its policy steps (and exceeding the CBR’s end-year forecast of 6.0% YoY in the coming months).