Page 41 - Russia OUTLOOK 2022

5.0 Real Economy
• Industrial production and PMI
After crashing in 2020, Russian industrial production recovered strongly in 2021 led by energy, metals and manufacturing, all of which were earning outsized profits.
The full year estimate for industrial production in 2021 is for 4.5% growth year-on-year, which is expected to slow to 3.5% in 2022 and then again to 3.0% in the next two years.
In terms of just economics the outlook for 2022 is good. Business confidence is at a decade-long high and the manufacturing PMI in the last few months of 2022 was also strong with panellists in the IHS Markit survey also maintaining a positive outlook for the next year. Moreover, analysts say that the high profits in 2021 will spur a capex spending spree that will further drive growth in 2022.
However, as the bounce back effects disappear in 2022 growth will slow and Russia will revert to its lower growth path and continue to underperform due to the lack of strategic reforms and underinvestment.
Risks also remain significant, says the World Bank, which cut its forecast outlook for the new year. "There are four risks that are important. The first one is the pandemic, a very significant factor. Then you have inflation. Then you have geopolitics," Renaud Seligmann, the World Bank's country director in Russia, told Reuters in December.
An unknown on the upside is how effective the state’s investment into the 12 national projects proves to be. The government has earmarked RUB27 trillion ($364bn) for this programme that could provide a Keynesian boost to growth if it is successfully implemented.
The breakdown of the October industrial production results gives some insight into the structure of industrial growth and is unlikely to change that much in 2022.
Russia’s industrial production growth accelerated to 7.1% year on year in October from 6.9% y/y in September, which meant output was up 5.0% y/y in 10M21, RosStat reported on November 25. In seasonally adjusted terms, industrial production was up 0.8% m/m in October following 1.8% growth in September.
The acceleration in y/y growth was driven mainly by the mining and quarrying
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