According to Rosstat, IP annual growth decelerated to 0.9% YoY in January (after the 3.9% increase in the previous month). The Bloomberg consensus and we expected growth of 0.7% and 0.0%-0.3%, respectively. SA IP growth dropped to -1.8% MoM, according to the official estimate.
The deceleration in manufacturing output to -0.1% YoY (from 4.1% YoY in December), was the main driver of weakening IP last month. Passenger car production contracted 25.7% YoY, and the downward trends are becoming more pronounced in some construction-related goods (cement and concrete), while pipe production growth, which supported IP in December, is starting to lose momentum.
The mining sector provided a degree of support for IP growth, although it edged lower to 1.5% YoY (from 3.0% YoY in December) on negative growth in natural gas extraction and other items. In addition, the headline IP continues to be backed by utilities, where the moderation in growth rates is more gradual (1.2% YoY vs. 3.4% YoY in December).
Output growth across the Russian industrial sector was broadly consistent with our expectations, going back to near zero after the effects from one-offs related to the surge in December started to dissipate. This print is in line with electricity production and rail cargo volumes.
The manufacturing sector demonstrated resilience and has held up rather well, supported by the demand induced by import substitution, which has boosted production of both the food and non-food components.
In the meantime, the IP report provides further evidence that the Russian economy is gradually contracting. Deficient demand and the expanding gap between actual production and available capacities might nudge the balance of economic risks in the coming months so that the CBR feels more comfortable with the further normalisation of the interest rate policy, especially if these trends are accompanied by the continued stabilisation of inflation, both as observed and as expected.