Page 19 - Eastern Europe Outlook 2020

To some extent the situation is due to the transformation of the Russian economy from an industrial producer that concentrates on making use of its raw materials, to a service economy that focuses on its large population. But the deep structural problems are the main cause of the poor industrial performance. Little is expected to change on this score in 2020.
The end of year results for 2019 were typical for the year. Russian base sector statistics for November showed a mixed picture, as growth in industrial production, construction and transportation slowed down compared to October, while agriculture, retail trade and consumer confidence continued to improve.
As reported by ​bne IntelliNews​, after a GDP improvement in 3Q19, November saw a sharp drop in both PMI​ and ​industrial output​ that baffled analysts.
“A breakdown showed that the weak manufacturing performance was due mostly to weak external demand and still-sluggish government spending on defence and R&D,” Sberbank CIB commented on December 19.
Slowdown was seen in important sectors like industrial production (0.3% y/y versus 2.6% in October), construction (0.2% vs 1.0%) and transportation (negative 1.5% versus no growth). Meanwhile, agriculture (up by 5.8% versus 5.2%) and retail trade (2.3% versus 1.7%) improved.
The one bright spot in 2019 was the contraction in real incomes that has depressed consumption seems to have finally come to an end. There was a solid improvement in retail trade in October and the consumer segment remains very well supported by low unemployment of 4.6%. Incomes may have been stagnant over the last six months, but everyone who wants one has a job and a regular income. As Putin has called for the government to focus on increasing incomes in 2020 consumption should increase as an economic driver and boost growth.
“The data shows that consumer demand is back as a major growth driver for the economy, although its strength is still much weaker than in the recent past,” BCS Global Markets wrote on December 20.
• Oil and gas
Russian oil production reached post-Soviet high in 2019, despite the agreeing to the so-called OPEC+ production cuts​, according to preliminary data from the Energy Ministry’s CDU-TEK unit. Russia produced 560.2mn tons of oil in 2019, up 0.8% from the previous year, or 11.25mn barrels a day. The only time Russia produced more was during the Soviet era, when domestic oil companies produced a record 11.416mn barrels a day in 1987, according to BP Plc. Russian oil production has growing for eleven consecutive years and even an agreement to cut 228,000 barrels a day from the October 2018 baseline of 11.418mn barrels a day, agreed with OPEC last year, was not enough to hold the growing production in check.
Gazprom has best production result for eight years in 2019 ​Russia’s state-owed gas giant ​Gazprom​ recorded its best gas production result in 2019 since 2011 after output rose by 0.5% to 500.3bn cubic meters for the whole year, CEO Alexey Miller told reporters in the first week of January. The export of gas to non-CIS countries declined by 1.3% compared to the record export
19​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com