The industry is adapting without overclocking – Newspaper Kommersant No. 200 (7401) of 10/27/2022

Published on Wednesday, October 26, Rosstat data for September indicate an acceleration in the decline in industrial production in annual terms – the fall is estimated at 3.1% after a 0.1% decline in August. The start of partial mobilization at the end of September would not have had time to affect the output, the decline is more likely caused by the high base of 2021 and the systemic problems of the Russian industry. Demand affects the dynamics of production: the decline in production continues due to the sanctions deterioration in foreign trade conditions, while processing is not able to cover the population’s needs for familiar products after the departure of Western companies. The output structure is changing in a different direction: the industry was able to increase the production of a number of simple goods, but it is experiencing difficulties in high-tech industries – for example, with a noticeable increase in the production of individual components of finished cars, half as much was assembled as in September 2021.

Rosstat’s data on the dynamics of the output of the Russian industry record a decline in industrial production in September by 3.1% in annual terms after a decline of 0.1% in August. Intra-annual dynamics (month-on-month, seasonally adjusted), on the contrary, demonstrates a slowdown in the decline, reflecting adaptation to the new reality — in September, the indicator decreased by 0.4% against 0.9% in August and growth by 1.2% in July .

In general, since the beginning of the year, production increased by 0.4% – the results are largely due to the growth of industrial production in the first quarter (5.1%) – a decline was recorded in the second and third quarters (2.5% and 1.3%, respectively).

The deepening of the recession is partly explained by the strong base in 2021 – in September last year, output increased by 7.9% after rising by 5.6% in August. As business surveys showed at the end of September, the industry then reacted weakly to the beginning of partial mobilization on September 21, so its contribution to the deterioration in industrial production is doubtful – its impact is likely to manifest itself in October data. Industry figures show the impact on the industrial sector of a number of systemic problems.

Thus, export restrictions narrow the possibilities of production in the extractive industry sector. According to Rosstat, the decline in production is estimated at 1.8% yoy after a 1% increase in August. In particular, oil and gas production decreased by 2.2%, while the decline for oil was 0.2%, and for gas – 10%, which is directly related to external restrictions on the supply of raw materials. The extraction of metals also decreased – by 6.5%, and other minerals (stone, clay) – by 1.8%.

In the manufacturing industry, structural adjustment is likely to continue. In general, in processing, the decline in production amounted to 4% in annual terms against 0.8% in August, since the beginning of the year, the decline in the sector is estimated at 0.5%.

In the sectoral context, the data indicate multidirectional dynamics – the activity of enterprises in the production of simple products while reducing the output of more technologically advanced.

Thus, in September, against the backdrop of a large harvest, the production of food products (1.8%) grew, especially canned fruits and vegetables (9.3%) and vegetable oil (15.1%), as well as drinks (4.1%) and clothing (5.6%) against the backdrop of foreign suppliers leaving the market. Meanwhile, in the production of more complex products, Russian manufacturers have not yet been able to replace foreign goods – for example, with a short-term increase in the production of bodies and components (by August, production increased by 12.7% and 12.5%, respectively), the production of finished cars increased only by 2.5%, in annual terms, their production fell by almost 40%. Data on the production of other finished goods also indicate a short-term increase in output – the indicator in the third quarter is higher after a dip in the second (1.2%), while in annual terms the decline is 6.4%.

Another problem that was fixed earlier by leading indicators and noted by analysts of the DIP of the Bank of Russia is the discrepancy between the demand shown by the population and the industry itself, with the product range of its output, due to which a number of needs remain unsatisfied, and the proposal does not find buyers, which is reflected in statistics as weakness in demand.

Vladimir Salnikov from TsMASF, however, notes that with the elimination of seasonality, the industrial decline in September was de facto small. “In the sectoral context, we record a decrease in the production of metallurgical products,” the expert notes, suggesting that indirectly these indicators may indicate a decrease in the output of the military-industrial complex relative to 2021, although it is impossible to isolate such products from the general array of “undecoded part of the data” . He explains the decline in the automotive industry by “high dependence on imported supplies – they are difficult to replace, as a result, in case of failures, the industry reacts with a pause in production.” The CMASF also points to a trend reversal in pharmaceutical production: despite the impressive growth (11.9% in annual terms and 21.5% since the beginning of the year), the pace of output in the industry that has not fallen under sanctions is slowing down.

Diana Galieva, Oleg Sapozhkov