According to the figures made public by Rosstat, IP lost 1.6% YoY in February after gaining 0.9% in the previous month. The print undershot consensus, which stood at -0.6% YoY and our estimate of near zero growth.
Sector-wise, manufacturing dropped 2.8% YoY (vs. -0.1% a month ago), electricity slowed to -1.7% (vs. +1.2% in January). Mining production was marginally positive at +0.1 YoY after 1.5% YoY.
Manufacturing output was the major contributor to the stalling industrial production, declining 2.8% YoY. Component-wise, significant decreases were shown by the production of machinery and electrical equipment as well as clothes and footwear. Meanwhile, production of food and beverages, construction materials and pipes was on the rise.
The contraction in utilities output was mostly due to the warmer weather conditions, which led heating output to reduce by 7.9% YoY. In the mining sector, growth in oil (+0.1%) and coal (+3.9%) output was counterbalanced by an 8.8% YoY decline in natural gas production, pulling the headline figure down to a meagre +0.1%.
On the whole, industrial production is continuing to enjoy support from temporary factors (including homebuilding, pipeline infrastructure and faster (and larger) budget allocations in defence) and the weaker currency. Their effective impact makes the decline on the supply side milder than the sharp drop in demand and IP contraction observed during the 2008-09 recession.
Policy-wise, declining industrial production provides additional evidence of increasing slack in the economy. Although the contraction is still mild, tight credit conditions, deleveraging in corporate and household sectors and declining demand are set to provide increasingly downward pressure. In combination with anti-inflationary fiscal policy, which will curb consumption and anchor cost inflation in the private sector, IP data supports a more front-loaded trajectory of monetary policy normalisation.