Economy of simple things – Newspaper Kommersant No. 155 (7356) of 08/25/2022
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Rosstat recorded a sharp slowdown in the decline in industrial production in the Russian Federation in July – its pace decreased to 0.5% year-on-year, while by June the industry, seasonally adjusted, grew by 1.2%, this is the maximum since December 2021. According to industry data from Rosstat, the reason for the improvement in performance could be a surge in the production of relatively easy-to-manufacture industrial goods, which can be explained by the import-substituting activity of part of the Russian civilian industry, the restoration of part of the supply of components and the growth of military production. At the same time, Rosstat reported on a large-scale revision of previous output estimates: according to new data, the industry grew faster last year, fell more strongly in the first half of 2022, and is recovering more dynamically now. However, there is no need to talk about an industrial boom – the growth in the production of simple things is offset by the inability of the economy to replace foreign high technologies.
One of the key stories in the latest batch of Rosstat statistics on industrial production in July is a large-scale revision by the agency of data on its dynamics in 2021 and the first half of 2022. Thus, Rosstat notes a more noticeable increase in output last year – 6.4% against the previous estimate of 5.3%, which, in turn, exacerbated the depth of the industrial decline in the first half of 2022 – due to the growth of the base for comparison. Production growth for the first half of the year amounted to 1.3% (minus 0.7 percentage points), while, according to new data, in March it was already slowing down to 2.3% (3% before the revision). In April, the decline in output caused by military operations in Ukraine and related sanctions and counter-sanctions, in annual terms after the revision, is estimated at 2.6% (1.6% earlier), in May and June – 2.4% (1.7 % and 1.8% respectively).
Increasing estimates of the depth of the recession in the first half of the year, however, make it possible to record a more dynamic recovery of Russian industry in July.
The rate of decline in industrial production slowed down in annual terms to 0.5%, while by June, seasonally adjusted, the indicator even increased by 1.2% after zero dynamics in May-June.
The main contribution to the stabilization of the pace of industrial production in January-July comes from mining — for example, in annual terms, since the beginning of 2022, it has grown by 2.6%. In processing, the growth rate was 0.1%, in the sectors providing electricity, gas and heat – 0.3%, and in the field of water supply, sanitation and waste disposal, a decline of 4.7% was recorded.
In July, however, the processing managed to increase the production rate – an increase of 2.8% compared to June (minus 1.1% in annual terms), while in production growth is estimated at only 0.8% (0.9%).
In turn, CMASF (estimates a limited set of goods, but with more reliable data, and also excludes classified items) records an improvement in indicators in July – the decline in annual terms was 3.1% against 3.9% in June (difference with Rosstat estimates allows you to form an idea, including the scale of the contribution of the military-industrial complex to the restoration of industrial dynamics).
“The greatest recovery growth is observed in the most affected industries. The rest do not show a noticeable decline,” notes Vladimir Salnikov from the CMASF.
Thus, according to analysts, the auto industry became the leader of the recovery, which sank heavily in the spring (in annual terms, the industry is still in decline), which can be explained by the restoration of supply chains. Growth in output is observed in metallurgy, which is partly due to an increase in output in processing. Against the backdrop of export concessions, an increase in the production of petroleum products and mineral fertilizers was recorded.
The data of July statistics is noticeably higher than analysts’ expectations – leading indicators of Rosstat and experts indicated a sharp deterioration in business sentiment in the industry in July (see “b” from 20 and 21 July). Pessimism affected all indicators – demand forecasts and plans for release and hiring. Against this background, analysts attributed the stabilization of output in May-June to the replenishment of stocks of finished products, but predicted a reversal of the trend against the backdrop of filling warehouses and slowing down domestic and external demand – which did not happen.
We note, however, that the detailed Rosstat report on the production of the most important types of goods demonstrates, in addition to the above, another important trend: the acceleration of industrial production is mainly ensured by the production of mass and relatively simple technological items of the nomenclature – from oil and oil products to agricultural machinery, medicines, building materials , rolled metal products and overalls. At the same time, with an increase in manufacturability (in the absence of export opportunities), the output intensity noticeably decreases, which suggests a deepening recession in industries for which foreign technologies and supplies are critical. So, if the production of medicines in July 2022 increased by 17.5% compared to July 2021, having decreased by 7.3% compared to June 2022, then medical equipment for diagnostics, radiation, rehabilitation and therapy in July 2022 releases are 2.8% less than in July 2021 and 10% less than a year ago.
The same picture—the aggravation of the decline in output with an increase in the technical complexity of production—is also observed in other processing sub-sectors.
Thus, the recorded growth of “semiconductor devices” in July doubled compared to June and by 36.9% compared to July last year is offset by a decrease in the production of computers (by a third compared to June and by 6.3% yoy), televisions (by 17% and 7 %, respectively), etc.; the same trend can be noted in mechanical engineering, chemical and other industries.
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