Weak industry data points to Russian slowdown

A sharp fall in industrial output growth in March has added to signs that Russia’s economy is slowing, after a strong start to the year, as weak global demand takes its toll on exports. Industrial output rose 2.0 per cent in March compared with a year ago, the Federal Statistics Service said on Monday, a marked deceleration compared with 6.5 per cent growth in February. Analysts polled by Reuters had expected a 4.5 per cent increase in output year-on-year last month. On a month-by-month basis, seasonally adjusted industrial output fell by 1.2 per cent, the worst monthly fall for over a year, the Statistics Service calculated. “Although some slowdown has been expected, actual performance appeared to be disappointing,” BNP Paribas chief Russia economist Julia Tseplyaeva said in a research note. She noted that the deceleration was mainly driven by lower production of investment goods, which contrasted with relatively buoyant production by consumer-focused industries. Economists had previously been encouraged by surprisingly rapid industrial growth during February, as well as by strong growth in investment and consumption during the first two months of 2012. Many had nevertheless anticipated a deterioration, as Russia’s exports are being hit by slowing growth internationally, with the most recent PMI surveys pointing to minimal growth in manufacturing. London-based consultancy Capital Economics warned last week that it expected economic headwinds to grow for Russia over the rest of 2012 after a strong start to the year as the external environment weakens. A tightening of fiscal policy, following Prime Minister Vladimir Putin’s victory in the March 4 presidential election, may also help to explain the abrupt industrial slowdown. Whereas Russia ran a 3 per cent fiscal deficit in January and February, it ran a 1.7 per cent surplus in March. Alexander Morozov, chief economist at HSBC in Moscow, said that the sharp slowdown in March may be the result of flaws in the data, linked to the extra day in February because of the leap year. The data “are showing very strong seasonally and calendar-adjusted growth in February, which I think was not quite correct. Now they are offsetting their inaccuracy in February, with the opposite sign for March.”