On the heels of the Russia’s Central Bank’s decision on 12th February 2018 to cut its key rate from 7.75% to 7.50%, Rosstat, Russia’s state statistical agency provided a positive snapshot of the state of Russia’s economy in January.
Following an unexpected slowdown in the second half of 2017, with a shock contraction in November, industrial production rose higher in January, rising 2.9% overall, with manufacturing sharply up and growing by 4.7%.
The sharp rise in manufacturing more than offset falls in production of oil, gas and gold, with the extractive and mining industries basically flat at 1.1%.
The stellar performer in the manufacturing sector was car production, which rose 31.7% in January, maintaining its rapid rise in 2017.
It is now being reported that the main cause for the decline in manufacturing in the second half of 2017 was the seasonal fall in defence orders during that period.
If so then it is possible that the decline in the headline rate of manufacturing growth in the second half of 2017 conceals continuing increases in civilian manufacturing during that period.
At a meeting of the State Council Presidium on 1st February 2018 – convened to discuss industrial policy in Russia’s regions – President Putin hinted as much when he reeled off statistics showing rapid increases in various key civilian manufacturing sectors in 2017
I would like to note that last year industrial growth in Russia amounted to one percent. We cannot be satisfied with this. Of course, we are aware of the positive aspects of this growth, the positive side. A number of sectors show good dynamics: transport engineering, the automotive industry, pharmaceuticals, textiles, food, and chemicals.
For example: in 2017, the production of railway locomotives and rolling stock increased by 33 percent, of motor vehicles – by over 13 percent, medicines by 12.3 percent, textiles by 7 percent, food products by 5.6 percent, and chemicals – by 4.3 percent.
Doubtless the main reason for the fall in production in Russia’s oil sector – which also caused downward pressure on industrial growth – was the oil production cut Russia has agreed with OPEC.
It nonetheless remains my view that the single biggest factor in holding back faster industrial growth in Russia is the country’s exceptionally tight monetary policy, which at a time when the Russia’s government’s budget is moving into surplus is stifling demand and investment in the economy.
The Russian Central Bank’s decision to cut its key rate by 0.25% – no more than matching recent falls in inflation, which at an annualised rate of 2.2% remains far below the Central Bank’s 4% target – shows that the Russian authorities intend to stick by this policy.