Russian Industrial Output Probably Shrank for Third Month

Russian industrial production probably fell for a third month in March as Europe’s debt crisis hurt exports and investment.

Output at factories, mines and utilities fell 1 percent from a year earlier after a 2.1 percent drop in February, according to the median estimate of 19 economists surveyed by Bloomberg. The Federal Statistics Service in Moscow will publish the data today or tomorrow.

The economy of the world’s largest energy exporter is expanding at the slowest pace since a recession in 2009, prompting government calls for monetary stimulus to revive domestic demand. Shrinking industrial output may underscore the case for easing as the central bank prepares for a transition of leadership in June.

“There is a lack of domestic demand due to a slowdown in lending, low rates of state investment and savings growth,” Maxim Oreshkin, chief economist for Russia at VTB Capital, said by phone April 12.

The ruble has weakened about 2.2 percent against the dollar in the past month, its second month of decline and the worst performance among more than 20 emerging-market currencies tracked by Bloomberg in that period. It traded down 0.8 percent at 31.3200 per dollar at 10:53 a.m. in Moscow. The Micex Index of 50 stocks retreated 0.6 percent to 1,377.36.

5% Target

The economy will grow 2.4 percent in 2013, compared with the 5 percent medium-term target set by Prime Minister Dmitry Medvedev, according to the Economy Ministry. The ministry last week cut its estimate for industrial-output growth this year to 2 percent from 3.6 percent and reduced its investment-expansion forecast to 4.6 percent from 6.5 percent.

High interest rates and a “very strong decline” in the estimate for natural-gas exports are the main reasons for a lower growth forecast for this year, Economy Minister Andrei Belousov told reporters April 12.

“Russia depends much on Europe, where the situation remains complicated,” Alexey Devyatov, chief economist at UralSib Financial Corp. in Moscow, said by phone April 12. “That’s why there’s an export squeeze. Europe also influences business sentiment as companies react with rather sluggish investment.”

Companies, such as OAO Rosneft and OAO Gazprom are revising their investment plans, Belousov said. Gazprom plans to cut capital expenditures by 35 percent this year from 2012, his deputy, Andrei Klepach, said.

Stagnation, Growth

“Industrial output most likely will be negative in the first quarter,” Klepach told reporters April 12 in Moscow. “We still expect stagnation in the second quarter and growth in the third and forth quarters” because of reviving exports, government demand and state investment in the defense industry, Klepach said.

The economy risks shrinking in the autumn without stimulus measures, which government will discuss at a meeting with President Vladimir Putin, Belousov said, reiterating a call for the central bank to cut interest rates.

“When real interest rates reach 4 to 5 percent, that’s very high,” Belousov said.

Monetary easing has started in Russia, the biggest emerging-market economy to raise borrowing costs last year. While Bank Rossii left its main refinancing rate unchanged at 8.25 percent for a seventh month on April 2, it took the biggest step toward easing monetary policy since raising all rates in September by cutting borrowing costs on less-frequently used credit instruments. Outgoing Chairman Sergey Ignatiev said the move was a first step toward lower borrowing costs.

Policy Priority

Subduing consumer-price growth should remain the priority of monetary policy, Elvira Nabiullina, the next chairman of Russia’s central bank, told lawmakers April 9, when the lower house of parliament confirmed her nomination to replace Ignatiev in June.

While Russia has “room to maneuver” in terms of easing rates, a reduction would require slowing growth and higher unemployment and should be made based on a full analysis of the situation, Nabiullina said.

Before it's here, it's on the Bloomberg Terminal.