Russian industry continues to expand, albeit still moderately

RUSSIA ECONOMICS - In Brief 26 Oct 2023 by Evgeny Gavrilenkov

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Rosstat reported that industrial production grew by 3.3% y-o-y in 9M23, and the figure appears not very impressive. However, it is still skewed by base effects. The more indicative could be a look at 3Q23 and September statistics. It grew by 5.3% and 5.6% (y-o-y in both cases) in these two periods. Seasonally adjusted industrial output grew by 0.3% m-o-m. The mining sector still drags the entire industry as it was down y-o-y by 1.2% and 0.7% in 9M23 and September. Manufacturing is on the rise (up y-o-y by 7.9% and 10.9% in 9M23 and September). Production in manufacturing is supported by government spending and expanding consumer credit. The former factor will continue to boost manufacturing in some segments as the government significantly increases defense expenditures in the 2024 federal budget. The latter factor will gradually fade as high inflation encourages the CBR to hike the key rate, which will eventually trim household demand for credits. Therefore, growth in manufacturing will likely decelerate while the mining segment will slowly recover. Hence the industry will continue to expand. A few examples can illustrate the magnitude of base effects. For instance, production of cars was up in 9M23 by a mere 2.7% y-o-y, while in September alone, it was up by a factor of 2.7. Gas production was still down by 11.4% y-o-y in 9M23. It grew by 1.5% y-o-y in September. Meanwhile, production of the so-called “other types of vehicles and equipment” grew steadily this year as it was up by 31.4% in 9M23 and 45.8% in September (both y-o-y). In turn, it pulled metallurgy. Electronics and optical equipment production also demonstrated strong double-digit rates of growth. Next year...