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IP – returned to the red with a 0.1% YoY decline in October

 
19.11.2013

According to Rosstat, IP annual growth fell back into contraction, shrinking 0.1% in October (vs. an 0.3% increase a month ago), bringing the YTD growth to zero. The Bloomberg consensus and we expected growth of 0.5% and 0.4%, respectively. SA IP growth dropped 0.6% MoM, on the official estimate.

The intensifying drop in manufacturing output, to -1.9% YoY (the second lowest since the crisis), was the main trigger of IP weakening last month. Production of construction-related materials lost momentum, as did oil input, while car and metal output recovered, correcting from the plunge in September. Moreover, the mining sector remained the key support for IP growth, with light advance in the pace to 1.8% YoY amid a strong spike in gas output growth to 16% YoY, multi-year high.

The softer YoY growth in utilities (at 1.9%, from 2.9% in September) shaved a little from headline IP growth, but was still positive.

Output growth across the Russian industrial sector surprised on the downside in October, falling back into the negative area. Sector-wise, output growth across the mining and utilities industries held up rather well, propped up by the colder than usual weather (particularly true for early October), while the underlying trend in the manufacturing sector softened further. In the meantime, WDA YoY growth improved slightly to 0.1%, although it remained near zero for the sixth consecutive month.

Given the persistent cooling momentum across manufacturing industries, the normalisation of gas exports to Europe (after the unusually robust growth through July-October) and the warmer weather so far in November, IP is unlikely to rebound in any convincing fashion in the months to come. Hence, we have revised our FY13 IP forecast 0.4pp down to 0.2% YoY.

This negative surprise bodes poorly for our (and the CBR’s) expectation of an optical improvement in the growth picture in 4Q13. Nevertheless, the CBR is likely to take comfort in the fact that there was no huge negative surprise. 

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

Tags:
Rosstat, CBR

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