January's Industrial Output Falls by 20%

Industrial output contracted by a fifth in January, the biggest monthly fall in the series' seven-year history, according to data on Monday -- including an 80 percent drop in automotive production compared with a year ago.

Slowing demand at home and abroad because of the global financial crisis meant that output fell 19.9 percent in January compared with the previous month. It declined 16 percent from a year earlier, steeper than the 11.5 percent drop that had been expected by economists.

"It's a dramatic number, it's like a cold shower in the morning," said Gintaras Shlizhyus, analyst at RZB. "It increases the possibility of a serious economic slowdown and of forecasts for [2009] GDP being revised down."

The economy is seen entering its first recession in a decade this year, with the government forecasting a 0.2 percent drop in gross domestic product and analysts expecting a contraction of 0.8 percent.

Manufacturing was the worst-performing component of industrial output, falling by a third from the previous month and nearly a quarter from a year earlier.

Companies face reduced demand because of the economic crisis at home, where 1.8 million people have lost their jobs since August, and abroad.

Moreover, the global credit crunch has made it hard to secure fresh funding or refinance old loans, both for the companies and for would-be buyers of their goods.

Ordinary Russians are finding it more difficult to afford new cars and harder to get car loans. This is leading to factory stoppages and shorter working weeks at key manufacturers, including AvtoVAZ and truck maker KamAZ .

Production of tires, cars and buses all fell by 80 percent or more compared with a year ago.

Data out last week showed that car sales contracted by a third in January -- a sharp turnaround for a country that had been expected to overtake Germany as Europe's largest car market this year.

Construction-related materials also saw a sharp fall in production, with output of cement down by about 40 percent.

Reflecting the sharp slowdown in output, freight shipments by rail slumped 35 percent year-on-year and the Russian Railways monopoly expects freight to be down 20 percent for 2009.

Faced with the worst economic outlook in a decade, the government faces a tough choice between scaling down budget spending and anti-crisis measures after the oil price fall wiped out a third of projected revenues, Finance Minister Alexei Kudrin said Monday.

Analysts say manufacturers may start to benefit later in the year from the weaker ruble.

The currency has lost more than a third of its value versus the dollar in six months, which typically makes domestic goods more attractive than foreign ones.