Russia’s industrial sector posted the smallest contraction in four months, in the latest sign of a crackdown on the US and its allies over the Kremlin’s invasion of Ukraine.
Industrial production fell 0.5% in July, a smaller decline than the 2.3% expected by analysts in a Bloomberg survey and the best result since the first months of the war. In seasonally adjusted terms, production rose from the previous month for the first time this year, according to data released by the Federal Statistics Service.
Increased production of mining and petroleum products, along with the recovery of sectors such as pharmaceuticals, semiconductors and textiles, which have benefited from the exodus of foreign competitors since the start of the war, contributed to outperformance. to those planned.
The sanctions and have hit the Russian economy, but the impact has not been as deep as many feared at the start of the war. Overall, the economy shrank 4% in the first half, with the central bank forecasting a 4-6% drop for the year.
“Mining is ahead of the rest, but that is to be expected,” explains Renaissance Capital economist Sofya Donets. “But the manufacturing industry is also showing improvement above expectations.”
Even the automobile sector, which had practically come to a standstill in recent months due to the flight of foreign companies that dominated the sector, showed some tentative signs of stabilization, as production only fell 58% in July, compared to -66%. of May. Local producer Avtovaz declared on Wednesday that it will resume five-day-a-week production next month, the Tass agency reported.
However, some economists see cause for caution in the latest report on industrial production. “First of all, the improvement in July production seems to be localized in oil and metal production, that is, related to raw materials,” warns Dmitry Dolgin, an economist at ING. “Secondly, the estimate for the first half of 2022 was cut by almost half, from 2% yoy to 1.3%, mainly due to the lower estimate for the extraction of raw materials sector.”
Donets, of Renaissance Capital: “We expect trends to worsen in late 2022 and early 2023”
“Industrial production expanded by 1.2% compared to last month. Auto manufacturing remains a shadow of its former self, but production is gradually increasing. Overall, the report confirms our forecast for a slight contraction.” GDP of 3.5%,” notes economist Alexander Isakov for Bloomberg Economics.
In August, business confidence eased somewhat due to labor and supply import problems, according to a central bank survey released on Wednesday. However, optimism about the outlook remains, with many companies expecting growth.
In the oil sector, doubts remain about the coming months, especially because of sales of Russian oil, a vital export.
“We expect trends to worsen in late 2022 and early 2023, especially amid the implementation of the European Union oil embargo,” says Renaissance Capital’s Donets.
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