According to Rosstat, in January IP growth dived into the red for the first time since October 2009, with a decline of 0.8% YoY. The final reading was significantly below both the consensus forecasts (1.4% YoY BBG and 1.5% YoY Interfax) and our more conservative estimate of 1.3% YoY. SA industrial production declined 1.5% MoM.
The key drag was the mining and quarrying sector, with a 1.2% YoY decline on the 2.7% YoY drop in coal output and a contraction in oil production (-1.7% YoY), while gas output added 2.6% YoY. Meanwhile, the growth in manufacturing also slid to a decline (-0.3% YoY) reflecting weaker performances from trucks (-11.2% YoY) and metals (steel -5.8% YoY and rolled metals -2.8% YoY). At the same time, growth advanced in the production of passenger cars to 11.3% YoY, meat to 22.9% YoY and rebounded in construction-related goods. The growth in utilities was the only IP component in positive territory, at 1.8% YoY.
Such a weak IP reading came as a surprise, given the favourable calendar factor (17 days in January 2013 vs. 16 days in January 2012), addition to gas production and positive bounce back in PMI Manufacturing. At the same time, the recent IP figure coincides with a visible drop in rail cargo volumes and the deceleration in electricity output on warmer weather. While export-oriented industries printed worse results than in December, the performances of sectors focusing on internal demand showed some resilience, with the production of passenger cars and construction materials rising.
This weak IP figure might push the CBR to switch to a more doveish rhetoric at the March meeting. If other statistics for January show a visible moderation of growth, that might significantly raise the government’s pressure on the monetary authorities to cut rates in March. However, until the full raft of economic statistics comes out, we are keeping our forecast of a first easing step in April intact.