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. Last Updated: 07/27/2016

Industrial Sector Loses Steam in April

Industrial output declined 7.9 percent in April on a monthly basis and though the fall could in large part be attributed to seasonal factors, economists say it is a worrying sign showing the manufacturing sector is beginning to falter.

Output in the industrial sector of the economy, which last year made up 41.5 percent of gross domestic product, was up 5.5 percent on a yearly basis, but declined 7.9 percent compared to March, the Russian Statistics Agency reported this week.

While agency officials say that after adjusting for the fewer working days output was flat or even rose by 0.3 percent to 0.5 percent, independent economists suggest that the industrial sector contracted in real terms.

"The April decline is somewhat worrying, indicating local companies are facing certain obstacles to increasing their output," said Sergei Prudnik, Troika Dialog brokerage macroeconomic adviser.

Natalya Orlova, economist with Alfa Bank, said the April contraction could be due to electricity shutdowns in the regions, resulting from gas monopoly Gazprom's failure to agree on payments for gas supplies with national power grid Unified Energy Systems.

From April 1, Gazprom reduced supplies to federal power stations by 65 percent and to regional providers by 40 percent, forcing power companies to take a tougher stance toward their customers.

In Chelyabinsk, in the Ural Mountains, supplies were reduced to 80 percent of enterprises while in Nizhny Novgorod, in central Russia, 661 companies were switched off, according to Interfax.

President Vladimir Putin's personal intervention April 13 saved the industry's face and body, but its problems could be only beginning if Gazprom implements its plans to reduce supplies to the power sector from its current level of 137 billion cubic meters a year to 70 bcm.

Troika's estimates show industrial output dropped 2.5 percent in April, while Alfa Bank's figures suggest output was down about 1.5 percent.

However, both Troika Dialog and Alfa Bank said their forecasts for the whole year remained unchanged at 5 percent and that industry could grow further with oil prices recovering and the resumption of power supplies.

In addition, polls conducted among private businesses show business expectations eased in April.

While in January 63 percent of businesses hoped for higher sales in April, in March only 54 percent were betting on increased sales in June, according to a poll conducted among 200 selected companies monitored by the Russian Economic Barometer.

"This is still above 50 percent, but we are close to the crossroads," said Sergei Auktsyonek, director of the project that runs the Russian Economic Barometer.

Auktsyonek said economic indicators based on expectations often reflected a company's performance during the period when it was being polled and could change sharply with turns in business conditions.

And while 54 percent of companies hope that sales will be up in June, 80 percent forecast price hikes and 71 percent expect growth in salaries.

The Moscow Narodny Purchasing Managers' Index, or PMI, showed expansion for 16 consecutive months, but it was down to 56.1 in April from 56.7 in March.

PMI is based on a poll of 300 companies and any showing above 50 indicates expansion.


Expectations of higher sales within three months

January* 49%

February 51%

March 57%

April 63%

May 56%

June 54%

*estimates for January were made in October, for February - in December, etc.

Source: Russian Economic Barometer