Industrial Output Misses Expectations

Industrial production expanded at a slower pace than economists forecast in August as tighter access to credit and a slumping stock market hurt companies' expansion plans, the State Statistics Service said Tuesday.

Output grew 4.7 percent, compared with 3.2 percent in July and 0.9 percent in June, the service said. The median forecast of 16 economists was for 5 percent. Growth fell 0.9 percent on the month.

"Cheap credit from abroad was one of biggest factors behind industrial output and economic growth at large," UralSib chief economist Vladimir Tikhomirov said. "This, obviously, has stopped."

Tightening access to credit and mounting stock market losses are making it more expensive for companies to borrow and refinance existing debt, crimping their ability to invest and expand. Russian banks must refinance about $45 billion of debt, Standard & Poor's said Monday, and the cost of borrowing for companies has risen 2 or 3 percent, brokerage Troika Dialog estimates.

Turmoil in world markets has helped create a "severe shortage of liquidity in the banking system," Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, told President Dmitry Medvedev at a Kremlin meeting Monday.

The country's economy grew 7.5 percent in the second quarter, compared with 8.5 percent in the previous three-month period, the statistics service said Sept. 10.

Eastern Europe's economic outlook is deteriorating because of spillover problems from the global slowdown and high inflation, with average growth in the region set to slow to a six-year low of 5.8 percent this year from 6.9 percent in 2007, Fitch Ratings said Aug. 28.

LUKoil and dairy maker Wimm-Bill-Dann are among companies that have said they are being hurt by higher costs.

"What happens next will depend on how the banking system will function," Yelena Sharipova, an economist at Renaissance Capital, said ahead of the results.

Companies are finding it hard to obtain long-term loans after the inflation rate reached 15 percent in August, though the government is "adequately prepared" for the current situation and is expanding mechanisms for boosting liquidity, Finance Minister Alexei Kudrin told lawmakers last week.

On Monday, Kudrin said the maximum amount of unallocated budget funds that could be placed with banks at weekly auctions aimed at boosting liquidity had been almost doubled to 1.23 trillion rubles. Demand at Tuesday's auction exceeded the 150 billion rubles on offer by 24 billion rubles, the Finance Ministry said.

Tikhomirov called the liquidity pledges a "welcome move" with quarterly value-added tax payments due to cut banks' balances in mid-October by about 450 billion rubles.

The industrial output report showed manufacturing production grew an annual 6.5 percent, compared with 4.6 percent in July.