Page 38 - RusRPTJul20

4.1​ Industrial production
Base sector data by RosStat statistics agency shows that the real sector and services remained under "significant pressure" in May 2020​, BCS Global Markets wrote on June 22.
As reported by ​bne IntelliNews​, in May 2020 ​Russia's industrial output decreased by 9.7% year on year​. However, manufacturing in May stabilised and the accelerated decline in industrial output was mostly due to a decline in hydrocarbon production thanks to the OPEC+ output cut deal and the decrease in demand for gas after the warm winter.
Cargo transportation and construction also showed worsening dynamics in May (-9.5% y/y versus -5.8% in April, and -3.1% y/y versus -2.3%); however, transportation was also adversely affected by OPEC+ deal.
Agriculture remained the only segment within the real economy that showed continued expansion​, posting 3.2% y/y growth in May (3.1% in April).
Consumer-related segments continued to show the worst effects of the coronavirus​ (COVID-19) epidemic, with paid services to the population contracting by 39.5% y/y (37.9% y/y in April) in May.
But the decline in the retail sales moderated slightly to -19.2% from -23.2% as an increased number of retailers were allowed to restart operations. Residential construction also showed some improvement to a -24.4% y/y decline in volumes of completed housing versus -36.5% y/y in April.
Rosstat has reported that May industrial production extended its loss to -9.6% y/y from -6.6% y/y previously.​ The decline was less than our own estimates (-11.2% y/y), but more pronounced than the Bloomberg consensus had anticipated (-8.3% y/y).
The slowdown in the headline growth number can be traced back to the contraction in crude oil extraction (-14.5% y/y) due to the implementation of the OPEC+ agreement. With oil & gas production accounting for roughly 80% of output in mining & quarrying, this resulted in the -13.5% y/y decline in mining & quarrying and was broadly imbedded in the consensus', as well as the policy makers' estimates, in our view.
This implies that the observed deceleration in industrial production did not come as a surprise to the CBR and is unlikely to have added much information ahead of the Friday's monetary policy meeting. See our Monetary Policy - The Board's check-list, policy signalling and -100bp in June, of 16 June.
The path of the mining & quarrying sector recovery is highly predetermined: with the lion's share of the sector's output crude oil extraction, mining & quarrying will remain stuck in the red throughout the remainder of 2020 and is capped by the OPEC+ limits.
This implies that the rebound of industrial production is predominantly (if not exclusively) determined by the recovery of manufacturing.
38​ RUSSIA Country Report​ July 2020 ​ ​www.intellinews.com