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Industrial production decelerating


According to Rosstat, industrial production growth continued to slide, decreasing to 1.8% YoY in October (from 2.0% YoY in September). As well as being the lowest print since April this year, it is also significantly below the consensus forecasts of 2.5% (BBG and Interfax) and our estimate of 2.9%. SA industrial production declined 0.7% MoM.

The detailed breakdown reveals softer growth in manufacturing of 3.0% YoY (3.3% YoY in September) reflecting weaker performances from metals: steel -0.6% YoY (+9.7% YoY) and iron -1.1% YoY (+5.4% YoY). At the same time, growth advanced in the production of passenger cars to 11.3% YoY (5.6% YoY), plastic to 8.8% YoY (- 5.8% YoY) and construction-related goods. Meanwhile, mining advanced to 2.1% YoY (from 1.8% YoY) despite gas production returning to a decline last month of 4.3% YoY (+2.6% YoY). The growth in utilities was still in negative territory at -0.6% YoY (-0.9% YoY).

Although technical factors were supportive last month (October contained 23 working days in 2012, two more than in 2011, and the base effect was also favourable), the IP headline print was mainly dragged down by export-oriented industries. The recent improvement in these industries proved to be short-lasting. In October, gas production contracted again after a month of a growth in September. This was combined with a decline across the board within metals. In addition, the performances of sectors focusing on internal demand showed resilience, with the production of passenger cars and construction materials rising.

The IP report revealed ongoing adverse conditions on the supply side and so coincides with the recent concerns about the growth outlook expressed by the CBR. The weak reading supports our view for end of rate hiking cycle; to recap, we expect the next step (easing of policies) in late 1Q13-early 2Q13.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

Rosstat, CBR

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