According to Rosstat, IP returned to the black, with an annual increase of 0.8% in December, after two months of contraction. This came above our and the Bloomberg consensus forecast: drops of 0.6% and 0.3%, respectively. During 2013 as a whole, IP added 0.3% vs. 2.6% in 2012.
Sector-wise, annual growth in mining output intensified to 1.5% from 1.1% a month ago, while manufacturing also advanced and an increase of 1.6%, the first positive in the last eight months. The change in electricity output was expectedly poor, at a 7.9% annual decline (the strongest drop since February 2013).
During the last month of 2013, the biggest surprise in IP was the faster growth in mining output, despite gas output dropping 1.1% YoY on the back of warmer weather. Manufacturing, nevertheless, became the major driver with a WDA YoY increase of 1.3%, returning to the black for the first time since April 2013. We registered an improvement across metals, oil output and construction-related materials. The latter could have been of a technical nature (an extended construction period owing to the warm December) and we do not think this implies any emerging momentum in the economy.
The 8% drop in electricity output can be almost completely explained by the warm weather and in our view was reverting into strong growth as soon as in January, when the weather turned cold.
In our view, the underlying momentum in production is still stalled and the recent pick-up can mainly be explained by the regular volatility in monthly data due to technical factors. While we take December’s industrial production report positively, there needs to be more convincing evidence of a shift towards a sustainable growth recovery. In terms of monetary policy, though, the CBR might also take the advance in December’s IP with caution, especially if the rest of the economic data is poor (to be unveiled next week).