Page 25 - RusRPTJul19

4.0 Real Economy 4.1 Industrial production
In May, industrial production was up +0.9% y/y, against the +1.6% y/y consensus, decelerating from +4.6% y/y in April.
The drawdown in annual growth can partially be attributed to the technical factor, as May this year had two working days less.
Other reasons were at play too, with IP (adjusted for working days and seasonality) being down -0.8% m/m SWDA in May, after the +1.2% m/m SWDA in April.
The slower growth in crude oil extraction (partly due to the Druzhba pipeline incident) as well as the squeezed output of petroleum products accounted for the IP weakness in May, the flash data suggests.
The growth in the mining & quarrying sector is gradually decelerating, from the above 7% y/y growth in 4Q18 to +2.8% y/y in May (+4.2% y/y in April).
Natural gas extraction is increasing at a solid +4.6% y/y on the back of strong external demand. This reflects, among other factors, the transition away from coal-fired electric power. Natural gas extraction is likely to increase throughout the year as a result of China imposing 25% tariffs on US LNG.
Crude oil extraction growth decelerated to +1.3% y/y in May, from +2.5% y/y in April, a rate unseen since 6mo18. In terms of volumes, crude oil extraction in May declined to 10.8mmb/d, from the peak 11.2mmb/d in 2018, as a result of the Druzhba pipeline incident. Whether oil extraction continues to expand in 2H19 depends, above all, on whether the OPEC+ deal remains in place.
Output in manufacturing was down -1.0% y/y in May. As the available data suggests, and based on rough estimates, output in the petrochemical segment takes away -1.3pp from the +0.9% y/y headline IP growth number, as diesel fuel, primary oil refining (-9.2% y/y), straight-run gasoline (-1.7% y/y) and residual fuel oil output (-6.4% y/y) all saw a decline. In particular, diesel fuel output was down -8.4% y/y, while gasoline output growth slid from +8.4% y/y in April to +0.1% y/y in May. Supporting the output in manufacturing, the production of farm tractors (+39.2% y/y), seeding machines (+17% y/y) and soil shifters (+110% y/y) reflects preparations ahead of the record harvest, in our view.
After three months of lower growth this year, industrial output growth accelerated in April to 4.6% y/y. For the January-April period, industrial output grew by 2.8% y/y.
25 RUSSIA Country Report July 2019 www.intellinews.com