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Russian June Industrial Output Expands Less Than Forecast

Russian industrial output expanded less than economists forecast in June as manufacturing contracted for a second month.

Output at factories, mines and utilities advanced 0.1 percent in June compared with a year earlier, following a 1.4 percent drop the previous month, the Federal Statistics Service in Moscow said in an e-mailed report. The median estimate of 17 economists in a Bloomberg survey was for a 0.5 percent increase.

The world’s largest energy exporter has struggled to shelter its economy from slowing demand in China, its largest single trade partner, as sluggish capital spending and domestic sales limit the pace of factory output. The outlook is making it harder for companies like carmaker OAO AvtoVAZ to expand volumes, with Renaissance Capital last month calling Russia’s steel industry “uninvestable” and cutting the stock of steelmakers such as Evraz Plc and OAO Severstal to sell.

“Industrial production in June was slightly worse than expected, though it still managed to show a modest increase,” Dmitry Savchenko, chief economist for Russia at Nordea Bank in Moscow, said by e-mail. “If it weren’t for the growth among miners, the 1.2 percent drop in manufacturing in June would have pulled the overall index into contraction.”

The Micex Index of 50 stocks climbed 0.2 percent following the release to 1,401.22 as of 5:36 p.m. in Moscow after paring gains of as much as 0.8 percent earlier. The ruble depreciated 0.2 percent against the dollar to 32.7050.

Manufacturing Shrinks

Manufacturing contracted 1.2 percent in June from a year earlier, less than May’s 4.4 percent drop, the service said. That was partly offset by an improved 3.1 percent expansion in mining output. Production at utilities fell 0.8 percent. Industrial output in the first half grew 0.1 percent from the same period of 2012, the service said.

“Industrial-production performance is likely to remain weak in the coming months,” Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said in a note to clients. “The stronger dynamics were owed to improving growth in the mining sector, mostly driven by stronger oil output.”

A gauge of Russian manufacturing improved last month to the highest level since February as an increase in domestic demand fueled new-orders growth, HSBC Holdings Plc said July 1.

Even so, sales are stumbling at automakers including AvtoVAZ, Russia’s largest. The country’s new car and light-commercial vehicle sales contracted 11 percent in June from a year earlier for the fourth straight monthly drop, according to the Association of European Businesses in Russia.

Near Zero

Industrial output growth remains near zero because of falling capacity utilization, particularly in the production and distribution of electricity, gas and water, said Dmitry Kharlampiev, director of macroeconomic research at OAO Bank Petrocommerce in St. Petersburg, who correctly forecast June’s 0.1 percent increase.

OAO RusHydro, the country’s biggest renewable-energy producer, has seen shares tumble 25 percent this year, compared with a 5 percent drop in the Micex Index. AvtoVAZ, the Togliatti-based carmaker part owned by Renault SA and Nissan Motor Co., has lost 36 percent.

“We’re seeing weak manufacturing numbers in accordance with weaker domestic demand due to the slowdown in consumer credit growth,” said Vladimir Miklashevsky, an economist at Danske Bank A/S in Helsinki. “People are becoming more financially educated, and they want to depend less on insanely expensive loans to finance their consumption. That’s affecting manufacturing, which we see in domestic car production.”

Monetary Easing

Central bank Chairman Elvira Nabiullina left Bank Rossii’s main lending rates on hold for a 10th month last week, while introducing a new, one-year floating-rate lending facility that economists said amounted to monetary easing. Weak investment spending and a slow recovery in foreign demand continue to pose risks to Russia’s economy, policy makers said in a statement July 12.

“The bad thing is that there really isn’t an explanation for the lack of growth like there was in May, when calendar factors played a role,” said Vladimir Osakovskiy, chief economist for Russia at Bank of America Merrill Lynch in Moscow. “The lack of growth suggests that there’s no domestic demand, which requires a monetary-policy response. We think key rates will be decreased in the nearest future.”

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