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IP – returns to the red with a 0.2% YoY drop in January


According to Rosstat, IP annual growth fell back into a contraction, shrinking 0.2% in January (vs. a 0.4% increase a month ago). The Bloomberg consensus and we expected growth of 1.0 % and 0.7%, respectively. SA IP growth dropped 1.0% MoM, on the official estimate.

The deceleration in manufacturing output to zero (vs. 2.4% YoY in 4Q13), was the main trigger of IP weakening last month. Production of metals lost momentum, as did machinery (motors, cars and trucks) and some construction-related goods (cement and concrete).

The mining sector remained the key support for IP growth, albeit with a slight decrease to 0.9% YoY (vs. 2.0% YoY) on slower growth in non-reported mining items. The softer YoY decline in utilities (3.9% vs. 10.1%) also helped headline IP growth.

Rosstat also revised IP data back to 2010.

Output growth across the Russian industrial sector surprised on the downside in January, falling back into the negative area for the first time since August 2013. This is in line with the 1.7% YoY drop in weather-adjusted electricity consumption, but contradicts the relatively strong growth in rail cargo volumes and the favourable base effect.

Sector-wise, output growth across the mining and utilities industries held up rather well, propped up by the colder than usual weather (particularly true since mid-January), while the growth in the manufacturing sector softened markedly.

Interestingly, Rosstat has elaborated on the 2010-13 IP data. As a result, last year there was an upwards move in IP growth that broke at the end of the year and worsened further this year. On balance, we still sense that IP remains at a standstill.

In the meantime, while we take the IP report negatively, we do not expect any monetary policy move in the coming months as, according to the recent rhetoric, the CBR acknowledges that the negative output gap is expanding and so far feels comfortable with its on hold stance, given the well above target inflation.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

Rosstat, Russia

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