Page 33 - RusRPTMay20

Russian industrial production expanded 0.3% y/y in March​, down from growth of 3.3% y/y in February. In 1Q20, it was up 1.5% y/y. The slowdown was mainly due to a deterioration in the mining and quarrying segment (where output fell 1.7% y/y, compared with 2.3% growth the month before), as weak external demand caused a contraction in gas (down 14% y/y) and coal production (down 9% y/y). Manufacturing growth eased to 2.6% y/y from 5% y/y in February, though this represented more of a normalization, as February's figures were positively impacted by the leap year effect. Electricity, gas and heat production fell 2.2% y/y due to abnormally warm weather in March.
The spread of the coronavirus and the lockdown measures announced at the end of March had a limited impact on manufacturing during the month, while the production of some food products and medicines even enjoyed a boost due to increased demand. For example, the production of semi-finished and canned meat products jumped by 14% y/y and 27% y/y, respectively, while drug and medical equipment production rose 14.6%.
Nevertheless, both manufacturing and mining and quarrying will experience a significant drop in April and May, as domestic demand is set to slump due to the quarantine measures and weaker demand for energy exports. We think manufacturing should start to recover in 2H20 after the quarantine measure are eased, though the mining and quarrying sector will likely remain under significant pressure due to the oil production cuts agreed under the new OPEC+ deal - we forecast that domestic oil production will drop 7.6% this year (see our recent report,” OPEC+: Oil Prices More Important Than Volumes"). Given the sector's relatively large weight in Russia's industrial production (and in all sub-segments), this will put further pressure on industrial output as well as GDP growth this year (we estimate it could dent GDP growth by as much as 0.9 pp).
33​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com