Contrary to expectations based on early signals from PMIs, as well as electricity and freight stats, Russia May IP printed at -5.5% YoY, below the Bloomberg consensus of -3.8% YoY and 1pp weaker than a month ago. This is the lowest reading since 2009.
Component-wise, mining growth was again marginally negative at -0.9% YoY (vs. 0.8% YoY in April), electricity and heat production edged lower to -1.4% YoY (from +1.8% in April), while manufacturing drove the contraction with the decline deepening from -7.2% YoY to -8.3% YoY.
The real decline in the mining industry was again driven by natural gas production (-11.8% YoY), while coal mining (+8.5%) and other components made a positive contribution. The warmer weather undermined the previous month’s growth and resulted in a heat production headline growth rate of -3.0%, while electricity stayed level.
The most significant drag was in the manufacturing data. The contraction in the sector’s output accelerated from -8.3% YoY, and its scope has spread even more, affecting in particular light industries (including cloth and clothing) and construction related items. Import substitution in the food production sectors remains well supported, yet some positions have not escaped the decline, as consumers continue to cut back on non-essential foodstuffs such as fruit juices, carbonated drinks and cream.
As we have noted previously, the sizable contraction of IP is likely to have a sobering effect and could trigger another round of growth projection adjustments to the downside. Policy-wise, this report produces more evidence of demand weakness spilling over to the supply side and further grounds for CBR concerns over the cyclical contraction of the economy.