Monday, September 17, 2012

17/9/2012: Russian economy shows signs of pressure build up


Big jump in producer price inflation in Russia (via fxstreet.com link here):

This confirms build up of inflationary pressures (see note on CB of Russia latest move in tightening monetary policy last week: link here).

Meanwhile, industrial production posted a slowdown in growth in August, rising 2.1% y/y after posting 3.4% growth in July, but ahead of .9% in June. The slowdown was concentrated primarily in Electricity, Gas and Water sector (+0.2% y/y) and the Mining & Quarrying sector (+0.8% y/y), with Manufacturing sector expanding at 4.1% y/y. M/m industrial output fell 0.7% in August, reversing gains of 0.8% in July. So far, January-August 2012 cumulated growth in Industrial Production stands at 3.1% y/y.

Twin effects of slower growth and rising producer prices suggest that either the slowdown might accelerate over time with inflation on the costs side (wages) feeding into reduced capacity of the producers to absorb twin pressures of shrinking exports demand and rising cost base.

On the other hand, we have continued general upward trend in Russian equity markets:
MICEX up from 1389 3mo ago to 1532 currently. The market is betting on temporary nature of the slowdown?

IMF has indicated they might downgrade Russian growth forecasts for 2013-2014 on foot of continued build up of pressures from European demand for Russian exports.
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