Industry does not see government support yet

In October, the annual growth rate of industrial production slowed to 3% from 2.6% in September, according to Rosstat.
Processing remains the driver of output growth - although only chemical and food production are steadily growing. The average monthly growth rates of industrial production, taking into account seasonality in January-October 2019, amounted to 0.3%, as a year ago, October also did not change them. The industry has not yet waited for support from budget expenditures, the first assessment of processing business activity in November 2019 turned out to be the worst since the beginning of 2016.

The slowdown in industrial production growth from 3% in September to 2.6% in October 2019 occurred against the backdrop of a high base in October 2018 (then the growth was 3.7%). The reasons are “earlier than in 2018, the beginning of the heating season and a greater number of calendar days in October than in September,” the Federal State Statistics Service explains. An analytical note by the Ministry of Economy says: the main contribution to industry growth, as in previous months, was made by processing - 2 percentage points (pp) in October - and the contribution of mining continued to decline (to 0.3 pp) against the background of the continuation of the OPEC + agreement and relatively warm weather in Europe. Processing indices improved primarily due to the accelerated growth in the production of coke and oil products (plus 6.8% in October against minus 0.7% in September).

The increase in the annual output of the oil refining industry in October was compensatory in nature after the fall in the summer months and was associated with the end of modernization at a number of large manufacturing plants, ”the ministry said.

Among the steadily growing processing industries in recent years are chemical production (plus 8.1% in October) and the food industry (plus 4.9%), the results of October in them ensured the production of fertilizers, medicines and the processing of a good crop. A positive part was also demonstrated by part of the investment sectors - the production of finished metal products (an increase of 13.6%) and mechanical engineering (5.8%). However, their impact on the overall industry growth rate is small - their share in the output is less than 5%, ING economists say.

Although, taking into account seasonality, Rosstat records an acceleration in the monthly dynamics of industrial production - from minus 0.1% in September to plus 0.3% in October, the October indicator remains at the level of average monthly growth rates for both ten months of 2019 and the same period of 2018 of the year.
Dmitry Polevoy from RDIF believes that the operation of the OPEC + agreement will put pressure on the industry until the end of the year - but softening the Central Bank’s policy, rising budget spending, restoring domestic demand and stabilizing export orders should support it.

However, on October data, the influence of budget expenditures on the issue is not observed. Dmitry Dolgin from ING, in turn, notes that the annual growth rate of budget spending should accelerate from 7% per annum in January – October to 18% in November – December — but it is not yet clear whether this will be enough to support industry. The very first results of market research processing in November IEP them. Egor Gaidar indicate a decrease in the industrial optimism index to the worst values ​​in early 2016. “After the October industrial production growth, which was quite decent by the standards of the long stagnation of October production in November, industry seems to have decided to abandon the increase in output and may proceed to reduce it. This scenario is absolutely logical in the conditions of growing dissatisfaction with demand - the share of answers “below the norm” reached 42%, which is the seven-month maximum of such estimates, ”the IEP concludes.