According to Rosstat, March IP returned to the black, with 2.6% YoY growth after a drop of 2.1% YoY in February. This came well above our and Bloomberg consensus expectations of a 1.0% YoY fall. SA industrial production improved, increasing 2.6% MoM.
The key IP growth driver was the manufacturing sector, with a 3.4% YoY increase, the strongest over the last four months. Pipe production added 4.0% YoY (vs. a decline of 1.6% YoY a month ago); oil products output also advanced. At the same time, car production declined further, to 8.1% YoY. Meanwhile, YoY growth in the mining and utilities sectors edged up to 0.6% and 1.1% (vs. 2.2% and 10.0% declines), respectively. In greater detail, gas production last month contracted 2.7% YoY, advancing from a 4.7% YoY drop. Besides, the annual change in electricity and coal output returned to positive territory, adding 0.7% YoY and 2.2% YoY, respectively.
We suggest that March’s pick-up in IP is mainly a technical bounce back after contraction at the beginning of the year. Key supporting factors of improvement vs. the low reading in February are an absence of the leap year effect and colder than usual weather in March. Besides, despite the fewer working days this March, we also saw surprising spikes in the production of tubes, chemicals and in the petrochemical industry, which we treat as one-offs.
In our view, IP growth is set be weaker in coming months as the cold weather is finally over, while weak domestic and export demand stories will likely persist. April's data will be underpinned by an additional working day, while May's reading will be hit by longer holidays this year.
As for the CBR monetary policy decision in May, the complete March data report (including unemployment and retail sales) is due out later this week, which we expect to be of more importance. We believe that still-weak economic data and the visible slowdown in the headline CPI will open the way for greater easing.