Russia's Industrial Production Slumps 2.1% in February, Lowest Since October 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russian industrial production growth continues to decelerate in February, which is indicative of the economy's slowing pace. The industrial production rate fell 2.1% year-over-year in February, after a 0.8% decline in January, and reached the lowest level since October 2009. Across the industries, gas, water, and electricity supply and distribution witnessed the largest decline at 10% year-over-year, versus a 1.8% increase in January. Mineral extraction accelerated its decline from 1.2% year-over-year in January to 2.25% in February, while manufacturing continued to be relatively resilient with 0.1% year-over-year in February.

"We believe that high base effects (6.5% year-over-year in February and 3.8% year-over-year in January), decelerated investments. A warmer February as well as calendar effects led to the decline in industrial production figures," said Yaroslav Lissovolik, an economist at Deutsche Bank in Moscow. "In addition to the warmer conditions in February 2012, there were less calendar days in February 2013 (28) than in 2012 (29). These circumstances likely influenced the production in gas, water and electricity. If the decline was constrained in that sector, industrial production growth could overcome January figures."

The weak industrial production could put additional pressure on the Bank of Russia to loosen monetary policy. "While the pressure increases, the rate cuts are still constrained by the high headline CPI, and we do not expect any cuts until early in the third-quarter, after inflation starts to decline in earnest," said Dmitry Polevoy, an economist at ING Bank in Moscow. "The industrial production data is insufficient for a strong call for imminent policy easing in the near term. We would prefer to wait for other February economic indicators, as well as March industrial production readings, to see whether the growth momentum continued deteriorating or not after base effects."

The consumer inflation in Russia accelerated to 7.3% year-over-year in February, compared with the Central Bank of Russia's (CBR) target range of 5% to 6%. Last week, the CBR left all policy rates--4.50% depo rate, 5.50% auction-based repo rate, 6.50% fixed-term repo/fx-swap RUB-leg rates and 8.25% refinancing rate (purely indicative and irrelevant for the market)--unchanged, given its balanced view on growth-inflation risks. The bank also signalled a possible easing in monetary conditions through the liquidity channel.

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