Industrial production shows signs of recovery?

newsletter 05/06/2014

Following the results of the 1st quarter 2014 the growth of industrial production in the RF made 1,1%, what is by 0,3 percentage points less, than in the 4th quarter 2013. The industrial production index, taken as a whole for the year 2013, was about zero values – 100,4% - the most limited success for all time after financial crisis of the year 2008. Thus, the stagnation in domestic economy persists. However, there is a number of criteria at the present time, which point indirectly at the breaking of negative trend.

In Russia in the 1st quarter 2014 the mining of subsoil resources increased by 0,8%, manufacturing - by 2,4%, and in the sphere of the distribution of electricity, gas and water there was fixed the decrease by 3,7%. Considering that in the 1st quarter 2013 the industry showed the negative result (-1,2%), then present figures should be considered with cautious share of optimism. Firstly, it is observed a positive trend in the dynamics of the manufacturing industry, what on its own is a positive sign, and considering unstable external-economic background, connected with events in Ukraine and later sanctions from the side of a number of countries, the growth in these conditions is an achievement; secondly, the significant decrease of power-generating sector during three straight quarters has had an impact on limited success in industrial production, that is explained by lengthy and warm autumn and a short winter period, when in November-January in the European part of Russia the positive temperature regime was observed most of the time.

Regarding positive figures of the growth of manufacturing industry, it may be noted the significant increase of production output in the segment of paper and cardboard, the growth made 530%, organic pigments – 120%, bodies for vehicle - 93,8%. The highest decrease is ever fixed in the supply of combine harvesters (-58,2%), gas turbines (-48,2%) and AC generators (-44%) to the market.

In the mining of subsoil resources the growth was noticed in the production of bauxite – 4,3%, and oil – 0,7%, gas recovery decreased by (-1,4%), coal - by (-1,7%).

growth of industrial production

Picture. Growth of industrial production to the relevant period of the previous year, %

 

The future of the dynamics of the manufacturing will depend mainly on tempo of the arrangement of the conflict in Ukraine, because Russia is the main foreign trade partner for this state, the reduction of our export by the collapse of Ukrainian economy will have a direct impact on us; there is a risk that the uncertainty over payments for gas leads to significant decline of energy supply to the country, by that the importance of transit role of Ukraine in gas providing for European continent must be considered. Sanctions of western countries will lead to increase of capital outflow and scare away potential investors, and the devaluation of the rouble, remarkable since the beginning of the year, will have an effect on accelerating inflation, the fight with which has been set as high-priority problem for the whole economic bloc of the government and the Central Bank for a number of recent years. 

On the other hand, the annexation of Crimea has already showed, that for integration of the half-island it will be necessary to carry out a number of large infrastructure projects (bridge building trough the Kerch Strait, building of new generating capacities, fresh water delivery etc.), what, finally, will give a new impulse to the industrial sector. The policy on isolation of Russia, conducting by the USA, will backfire – foreign trade cooperation with neighboring China will grow rapidly, including on gas supplies from Eastern Siberia, as well as with such large countries as India and Iran. Diversification of market outlets and decrease of import dependence on a number of key products, what they have been talking about in governmental authorities for all recent years, will go on this background at a growing rate.

In summary, Russia has come into the area of increased external political and economic risks today, which will have its effect on industrial development of the country more or less. But, having high human potential and unique natural and geographical location, Russia remains to be an attractive market for long-term investments, what must have an impact on volumes of industrial production soon or late.