Page 29 - RusRPTFeb22

4.0 Real Economy 4.1 Industrial production
Russian industrial production for December exceeded expectations, rising +6.1% y/y vs. the Bloomberg consensus estimate of +4.5% year-on-year.
Adjusted for seasonality, IP improved to +2% m/m SA, according to our estimates, and to +1.2% m/m SA, according to Rosstat.
We believe that the sequential growth in manufacturing (+2% m/m SA) was propped up by large federal budget outlays on infrastructure in late-2021 and was screened by the acceleration in machinery equipment (+10.7% m/m SA, in line with our expectations) and 'other transport' (+9.5%m/m SA).
In mining, Russian crude oil extraction fell short of the OPEC+ quota in December, limited by production capacities, as producers are seeking to raise output: mining services provision (which includes geological drilling and research) spiked +44% y/y, having remained the starkest number in every IP report since September and foreshadowing the rising capex in the sector.
Together with the late-2021 bounce in mortgage origination, the strong IP print suggests that 4Q21 GDP absorbed the acceleration in both industrial output and the financial sector, meaning that the 2021 GDP could well exceed the upper bound of the CBR's October +(4.0-4.5)% y/y forecast range, reinforcing the CBR's conviction of firm economic activity ahead of its February meeting.
Large budgetary outlays in late-2021 are going to continue underpinning IP in the near and medium terms, as their effect is not limited to December only (late-2021 budgetary outlays included prefunding).
Our outlook on 2022 GDP remains intact: growth is rotating towards investment and exports, as our estimate for the full 2022F stands at +2.2-2.4% y/y. We expect industrial production to advance +3.2-3.5% y/y in 2022F to prop up GDP in 2022F.
29 RUSSIA Country Report February 2022 www.intellinews.com