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VTBC believes the slowdown is temporary. The trio of metals, petrochemicals and vehicles manufacturing brought Rosstat's estimate of industrial production down to 7.2% y/y in August. That is better than July's 8.0% y/y, but short of the Bloomberg consensus (6.4% y/y) and VTBC’s forecast (6.6% y/y).
The drop in vehicles manufacturing (21.3% y/y), the largest part of, which is the production of passenger cars, does not match the scale of the decrease in demand for passenger cars (light vehicle car sales were down 0.5% y/y in August), while the decline in the production of basic metals (7.8% y/y) has decoupled from construction activity, as well as from the output of fabricated metal products (+5.7% y/y) and of machinery equipment (+6.0% y/y),” Alexander Isakov, chief economist at VTB Capital said in a note.
The headline annual growth number improved as a result of the OPEC++ production cut deal signed in April that will reduce production of oil by 9.7mbpd being partially relaxed in August: mining & quarrying printed 11.8% y/y (vs. 15.1% y/y in July), as crude oil extraction expectedly improved to 13.1% y/y (from 16.3% y/y).
Manufacturing increased +0.7% m/m seasonally adjusted in August: the positive growth momentum essentially reflects the ongoing gradual recovery in manufacturing. However, the pace of the recovery slowed from July's strong +3.9% m/m seasonally adjusted result, says VTBC.
Mining & quarrying (+4.0% m/m SA), which was boosted by the partial lifting of the OPEC++ restrictions, underpinned the headline industrial production growth, adjusted for working days and seasonality: according to VTBC estimates, industrial production increased +1.8% m/m SA in August vs. +2.1% m/m SA in July.
Two sectors continued to struggle in August: basic metals manufacturing and the production of motor vehicles (mostly passenger cars). They accounted for most of the slowdown in manufacturing, in both annual and seasonally adjusted terms, according to Isakov.
At the same time, the industries that have proven to be resilient during the recession pharmaceuticals, chemicals, food and beverages continued to underpin the annual growth number, together with machinery equipment production and the manufacture of metal products, which have recovered relatively quickly since April.
And there is not enough information to work out which metals are performing especially badly, says Isakov. Rosstat's flash report, however, names two items related to basic metals that pulled the growth down: the production of gold decelerated to 16.8% y/y, from the prior +4.3% y/y, which VTBC believes
49 RUSSIA Country Report October 2020 www.intellinews.com
