Last week, it seems to have been confirmed when industrial output was reported to be up 1.7% year-on-year, and up 0.3% month-on-month in June, above analysts' expectations of 0.9% y/y.
However, as more economic data for June was published yesterday, hopes for a noticeable improvement in the broader economy must have faded. Real GDP must have continued to shrink in June, albeit at a decelerating pace. The economy is smaller than it was in June last year, when the real GDP was down 4.2% y/y.
Key macro data for June 2016, % y/y
Outside the bounce in industrial output, statistics continue to point at a rather weak economy. Agriculture was up 2.1% y/y in June, but this was due, at least partially, to the base effect. The construction sector shrank another 9.6% y/y (it was down 10% y/y in June last year), while retail sales contracted 5.9% y/y (down 9.4% y/y in June 2015) and retail services turned negative at -2% y/y.
A closer look at the bounce in industrial output shows that it was mainly due to a good month for manufacturing and mining, both up 1.6% y/y. The low base effect for manufacturing is more obvious and remains one of the main reasons for positive annual growth.
Russian industrial output breakdown, % y/y
In the second half of the year, mining might become a drag on the economic growth, as output in the oil sector levels out.
Within manufacturing, export-oriented sectors such as refining and metal producers are stabilising at roughly last year's levels in terms of output. Food manufacturing shows a steady growth for several months now, and the chemical sector remains a bright spot. There was a spike in output of equipment and machinery (again, on a very low base), while auto output seems to have plummeted by 25% y/y. A few sectors such as timber and plastics show near-double-digit y/y growth, which is encouraging.
It's still difficult to call it a broad recovery overall, though. There doesn't seem to be a driving engine for economic growth, as export sectors hit capacity constraints and domestic sectors remain weighed down by weak consumer demand.
Russian consumers remain extremely cautious despite a small real increase in wages in June. Both retail sales and retail services were down. The leading consumer sentiment indicators for July
were also pointing down.
At least there seems to be some sense of fragile stability, with a more certain outlook for oil prices and the rouble. The economy is probably close to finally reaching the proverbial rock bottom, but with a continuous decline in investment, it might just get stuck there.
Russian consumers aren't flocking to stores anytime soon as the country's
economy remains fragile. Photo: iStock
— Edited by D. Deacon