Russian macro: industry to grow steadily in 2023, but capacity issues may hamper future growth
Rosstat reported that Russia’s industrial output increased by 2.6% y-o-y in 1H23, by 6.3% in 2Q23 and by 6.5% y-o-y in June alone. Recall that industrial output contracted by 0.9% y-o-y in 1Q23. There are still strong base effects associated with last year's 1H22 shock caused by the special military operation that triggered an exodus of foreign companies that operated in Russia. In 2022, industry accounted for 28.1% of the country’s nominal GDP. Mining represented 12.7% of the latter, and manufacturing accounted for 12.8% (the rest of the difference belongs to power generation, supply of electricity, gas, water, etc.). Trends in mining and manufacturing diverged in recent months. Mining declined by 1.2% y-o-y in 1H23. In contrast, the manufacturing segment grew steadily—by 1.1%, 11.3%, 13.1%, and 6.2% in 1Q23, 2Q23, June and 1H23, respectively (also y-o-y). Overall, based on 1H23 monthly statistics, the mining segment can grow by 0.5% in 2023 as a whole. Manufacturing will likely expand by 8-9% this year, and industry as a whole will grow by over 5%. Industry is an essential part of the Russian economy, and recently published statistics illustrate how this segment is evolving after most contacts with unfriendly jurisdictions have been cut. It is becoming a structurally different part of the economy as Russia tries to establish and strengthen trade relations with the non-Western community. So far, industry is continuing to grow on the back of increasing capacity utilization. To keep it growing will require a steady increase of investment in production capacity.
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