Russian Industrial Activity & Retail Sales: ‘adaequatio intellectus et rei’.

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Ms. Clemens Grafe of Goldman Sachs Bank explains the “Bottom Line”: 

Monthy indicators for November published by Rosstat showed a relatively sharp fall in industrial production, which contracted by 3.6% yoy, against consensus expectations of a moderate rise of +0.5%yoy. Base effects are weighing on industrial production growth in annual terms. Some sectors, such a metallurgical production, show even sharper falls, suggesting that the contraction may be concentrated in specfic sectors. That said, industrial activity has been falling for most of 2017H2 and seems weaker compared with H1. Much of this is likely to be explained by Russia’s agreement with OPEC to freeze production. Extration of crude oil and natural gas growth, unlike the oil production series, has fallen from an average of +2.4%yoy in 2017H1 to an average of -2.3%yoy in September and October, with Novemeber data not yet avaiable but likely to confirm the trend given a 1% yoy contraction in mining and quarrying sectors.

Moving on from industrial production, Ms. Grafe explains real wages and retail sales in Russia:

Similar to the previous month, real wages surprised to the upside, whereas retail sales growth fell and surprised to the downside. Real wages grew by +5.4%yoy, above consensus expecations of +4.5%yoy. Retail sales growth fell by 0.4pp to +2.7%, below consensus expecations of +3.3%yoy. The divergence between real wages and retail sales volume continues to imply a rising savings rate.

Ms. Grafe calms the readers never that another Russian Financial Crisis is not, in fact, taking place, circa 1998;

ER Russian Crisis figuur 1 nieuw

However, the OPEC deal is what is to blame for the slow down in momentum. She writes:

We (Goldmanites) do not read too much into the relatively sharp fall in industrial production as monthly indicators tend to be volatile. Nevertheless, the agreement with OPEC is clearly undermining the growth momentum. It affects not only the mining sector but also parts of the manufacturing sector, such as refining and other sectors that provide investment foods for the oil sector.

The reaction in the USDRUB the FX-market:

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Ms. Grafe’s reports continue with a helpful Supply & Demand overlay:

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The concludes with these main takeaways:

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-R.W.N II

 

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