The Russian State Statistical Agency (Rosstat) published data on industrial production for July and at the same time, in accordance with the regulations, conducted an annual revision of data for 2022 and 1H23.
Estimates of industrial production over the past year have traditionally been significantly improved – instead of a decline of 0.6%, it now turns out that there was an increase of 0.6%. At the same time, the estimates for 1H23 were slightly revised downward. In July, the growth of industrial production slowed down in annual terms to 4.9% after 5.8% in June (revised estimate, the previous estimate for June was an increase of 6.5%). Compared to the previous month, taking into account the seasonal and calendar factors, industrial production has been slightly reduced for the second month in a row (-0.1% MoM SA). This corresponds to the trend noted in the monitoring of companies (review of the Central Bank) towards a decrease in the indicator of the business climate of companies in July, which continued in August.
Among the factors limiting the output, companies often noted a shortage of personnel, a significant increase in production costs, as well as the lengthening of delivery times due to logistics difficulties. In the extractive industries, the lag is due to a reduction in oil and gas production (a consequence of government restrictions on oil production and exports to shift to a more favorable side of supply and demand in the oil market and a reduction in the "sanctions" discount in the price of Russian oil, as well as the loss of most of the pipeline gas exports to Europe).
Although the expectations of enterprises for the near future remained more optimistic, in our opinion, they may worsen under the influence of an emergency increase in the Central Bank's key rate to 12% and normalization of the pace of government spending, which at the beginning of the year warmed up output in industry, primarily in industries often associated with the production of military products.
Rosstat in August made an annual (in accordance with the regulations of 2020) revision of data on industrial production for the previous year – this is a traditional procedure based on the clarification of operational reporting by companies based on annual reporting data.
As a result, also traditionally, the indicator was revised significantly upward. According to new data, the dynamics of industrial production for 2022 was adjusted by (+)1.2 percentage points – instead of a decline of 0.6%, there was an increase of 0.6%. In manufacturing industries, the estimate was revised by (+)1.6 percentage points – an increase of 0.3%, in the raw materials sector – by (+)0.5 percentage points to +1.3%, in the electric and thermal power sector - by (+)0.4 percentage points to +0.5%, in water supply and sanitation, waste disposal and the elimination of pollution – by (+)2.8 percentage points to -3.3%.
The estimates of production growth were most significantly revised upwards:
1) finished metal products, except machinery and equipment: revision of growth by 8.3 percentage points (from 7.0% to 15.3%) due to the clarification of data on the production of building metal structures and products,
2) computers, electronic and optical products: growth by (+)7.6 percentage points (from 1.7% to 9.3%)
3) furniture (+)7.5 pp (from -2.6% to 4.9%).
Also, in accordance with the regulations, data on industrial production for January-June 2023 were clarified – they were revised down slightly, which could be affected by the effect of a higher base last year. After clarification, the growth of industrial production in January-June 2023 amounted to 2.2% due to a revision of the estimate by (-) 0.4 percentage points.
The dynamics of manufacturing industries for 1H23 was revised down by -0.7 percentage points (an increase of 5.5%), the raw materials sector by (-)0.1 percentage points – up to -1.3%, industries related to water supply and sanitation, waste disposal and pollution elimination – by (+)0.4 percentage points, up to -5.5%, the energy sector by (+)0.2 percentage points, up to - 0.1%.
In July, the growth of industrial production slowed down in annual terms to 4.9% after 5.8% in June (revised estimate, the previous estimate for June was an increase of 6.5%). Compared to the previous month, taking into account the seasonal and calendar factors, industrial production has been slightly declining for the second month in a row (-0.1% MoM SA after -0.2% MoM SA in June). This corresponds to the trend noted in the monitoring of companies (review of the Central Bank) towards a decrease in the indicator of the business climate of companies in July, which continued in August, with the most active decline in the current estimates of companies in production.
The main features of industrial production in July:
1. In the extractive industry in July, the decline was -1.5% YoY, slowing down from -2.0% YoY in June (revised estimate). Rosstat has suspended the disclosure of oil production data by order of the government since March. Natural gas production in July 2023 decreased by 6.7% YoY, and in January—July decreased by 14.2%. Metal ore mining decreased by (-)1.9%, coal mining increased by 4.4%.
2. In manufacturing, growth slowed to 9.5% YoY after 11.8% YoY in June (revised estimate). Again, the largest growth in annual terms is demonstrated by industries often associated with the production of military products: the production of other vehicles (including aviation equipment, shipbuilding, etc.) – (+)66.7%, computers and peripherals, optical and electronic products – (+)42.6%, electrical equipment – (+)29.5%. But in another traditional "champion" of growth - the production of finished metal products (except machinery and equipment) – growth slowed to 10.3% YoY – perhaps this is due to a significant upward revision of the base of last year.
3. The recovery growth of motor vehicles, trailers and semi–trailers continues - (+)46.2% YoY. However, in relation to the release of 2 years ago (July 2021), production is even lower by 38%. The output of passenger cars increased 2.1 times by July last year, but, according to our estimates, based on Rosstat data, this is only 40% of the level of July 2021. Also, the production of rubber and plastic products shows high rates of recovery growth – (+)18.3%; production of machinery and equipment not included in other groupings (including machine tool construction, production of metallurgical, mining equipment, agricultural machinery, etc.) – (+)17.3%, production of other finished products (+23.4%). According to our estimates, by July 2021, growth in these industries is 9.9%, 2.4% and 7.6%, respectively.
4. Furniture manufacturing shows a good recovery growth – (+)34.2% YoY and more than 20% by July 2021, which is apparently due to import substitution and the rapid growth of mortgage lending.
5. Compared to July last year, production volumes decreased in the following sectors: beverage production – (-)5.0%; paper and paper products production – (-)2.9%; tobacco products production – (-)1.8%.
6. According to our estimates, in addition to the automotive industry, woodworking (-10.7%), beverage production (-6.1%), tobacco production (-11.7%), textile production (-12.6%), paper and paper products production (-3.8%) have not yet recovered to the level of 2 years ago. Here, apparently, the consequences of export restrictions and the withdrawal of foreign companies from the Russian market are still affecting.
