Russia’s industrial sector posted its smallest contraction in four months, the latest sign the economy is adjusting to sweeping sanctions imposed by the US and its allies over the Kremlin invasion of Ukraine.
Industrial production fell 0.5 percent in July, less than the 2.3 percent expected by analysts in a Bloomberg poll and the best performance since the first months of the war. According to the Federal Statistical Office, seasonally adjusted production was up on the previous month for the first time this year.
Increased production of mining and oil products, as well as rebounds in sectors such as pharmaceuticals, semiconductors and apparel, which have benefited from the exodus of foreign competitors since the start of the war, contributed to the better-than-expected performance.
Sanctions and the exodus of many foreign companies have hit the Russian economy, but the impact has not been as profound as many feared at the start of the war. Overall, the economy contracted 4 percent in the first half of the year, and the central bank is forecasting a 4 to 6 percent contraction for the year.
“Mining is ahead of the rest, but that’s to be expected,” said Renaissance Capital economist Sofya Donets. “But the production also shows improvements that exceed expectations.”
Even the auto sector, which has been all but shut down in recent months as the foreign companies that dominated the sector fled, has shown some tentative signs of stabilization, with output falling just 58 percent in July, compared to down 66 percent in May . Local producer Avtovaz said yesterday he would resume production five days a week next month, Tass reported.
However, some economists saw cause for caution in the latest industrial production report. “First, the improvement in manufacturing in July appears to be limited to downstream oil and metals production, ie related to commodities,” said Dmitry Dolgin, an economist at ING.
“Industrial production increased by 1.2 percent compared to the previous month. Car manufacturing remains a shadow of itself, but production is gradually increasing. Overall, the report confirms our above-consensus call for a slight 3.5 percent contraction in GDP,” said Russian economist Alexander Isakov.
Business sentiment fell somewhat in August amid problems with imported supplies and labor, according to a central bank survey released on Wednesday. However, the outlook remained optimistic as many companies anticipate growth.
In the oil sector, doubts remain about the coming months, especially as Europe prepares to impose new restrictions on the sale of Russian oil, a vital export.
“We expect trends to worsen in late 2022 and early 2023, particularly given the implementation of the European Union’s oil embargo,” Ms Donets said.
https://www.independent.ie/business/world/industrial-data-from-russia-suggests-it-is-adapting-to-economic-sanctions-41935280.html Industry data from Russia suggests it is adjusting to economic sanctions