Photographer: Andrey Rudakov/Bloomberg

Russian Industrial Output Unexpectedly Drops Most Since 2009

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Russian industrial production contracted the most since 2009, defying government predictions of a quick economic turnaround as a recession sets in.

Output at factories, mines and utilities fell for a third month, shrinking 4.5 percent in April from a year earlier after a 0.6 percent drop in March, the Federal Statistics Service in Moscow said Wednesday in an e-mailed statement. That was worse than every forecast in a Bloomberg survey of 24 economists, whose median estimate was for a 1.2 percent decline.

The industrial slump is accelerating as manufacturers struggle amid the first recession in six years and domestic demand withers after the ruble’s biggest crisis since 1998. The downturn underscores the challenge for authorities, who already declared the worst of the crisis all but over and began to ease monetary policy after emergency moves last year.

“This is clearly a warning sign to the Russian officials who have been talking about an end of the crisis,” Dmitry Polevoy, a Moscow-based economist at ING Groep NV, said by e-mail. “This may also assume that the ruble and sentiment stabilization is not sufficient to overcome structural and cyclical challenges pushing the economy deeper into recession.”

Ruble’s Comeback

The ruble has rebounded after a plunge in oil prices and sanctions over Ukraine wiped out almost half of its value in 2014. It gained 13 percent in April against the dollar, becoming the best performer among more than 170 currencies tracked by Bloomberg. The Russian currency traded 1 percent weaker at 50.0670 to the dollar at 4:38 p.m. in Moscow.

While a gauge of manufacturing showed producers benefiting from the ruble’s turnaround in April, officials including Finance Minister Anton Siluanov have said the rally went too far. The Finance Ministry said Tuesday that it had joined the central bank in buying foreign currency as the rebound eroded the government’s export earnings.

“A recession is gaining momentum this quarter, the situation is getting worse and, accordingly, it had to have an impact on industrial production,” Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow, said by phone. “Inflation and the effect of the drop in consumer and investment demand, which were seen in previous months, finally manifested themselves.”

Rate Path

High borrowing costs were among factors weighing on demand, Industry Minister Denis Manturov said Wednesday. The situation will normalize as the central bank continues to lower its key interest rate, he said.

The Bank of Russia has cut the benchmark three times this year to 12.5 percent, unwinding December’s emergency increase to 17 percent used to fight the currency crisis. Policy makers said last month that they are ready to ease further as inflation risks abate.

“The deeper-than-expected slump in industrial production in April speaks of the recessionary domestic economy, and suggests that Russia has perhaps yet to see the worse of the current economic downswing,” Johannesburg-based Tradition Analytics said in an e-mailed research note. “Such conditions, alongside central bank expectations for CPI to moderate further, are likely to see the bank loosen policy again at its June meeting in order to stimulate economic growth.”

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