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IP growth was almost flat at 2.3% YoY in April


According to Rosstat, April IP printed YoY growth of 2.3%, near March's 2.6% YoY and bringing YTD growth to 0.5%. This came above our and Bloomberg expectations of 1.5% YoY and 2.0% YoY, respectively. SA industrial production dropped 0.9% MoM.

The key IP growth driver was the mining sector, with a 2.6% YoY increase (the strongest over the last 14 months), mainly due to gas output accelerating sharply to 10.1% YoY, from -3.6% YoY on average over the last 12 months. In addition, the growth in utilities more than doubled to 2.8% YoY (from 1.1% YoY in March), which was also supportive for IP reading. At the same time, the growth in manufacturing normalised after the 3.4% YoY spike in March, and adding only 1.2% YoY. That reflected the weaker performances from some metals and oil products. We note that the growth in car and construction-related industries improved. 

At first glance, April’s IP reading seems to be encouraging, as it was the second month in a row with YoY growth above 2% after the contraction in early 2013. However, the breakdown shows that the growth was spurred by different factors in March and April: while in March it was supported by a one-off jump in manufacturing, in April the key growth drivers were mining (mainly gas output) and utilities on colder weather both in Russia and Europe, as well as the additional working day compared with April 2012. Hence, in May we do not expect to see any advance in manufacturing, mining or utilities. That, coupled with the unbeneficial calendar factor (due to the extended May holiday this year) will likely lead to a YoY decline in IP.

We therefore believe it is too early to infer a recovery on Russia’s supply side and that economic stimuli are needed to boost growth. From the CBR’s perspective, the IP reading is of less importance than the unemployment rate and CPI, in our view. Hence, until the full raft of economic statistics comes out, we are keeping our forecast of bolder easing step in June intact. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

gas, CBR, CPI

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