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RUS - Domestic goods boost Russian April industrial output

MOSCOW - Russia's industrial output rose by 2.4 percent in April, nearly triple the expected rate, surprising analysts after signs that Western sanctions imposed over the annexation of Crimea were weighing on the economy.

The rise was spurred mainly by production of goods usually targeted at the domestic market, such as foodstuffs and textiles.

Output of Russia's main exports, such as oil and gas, was weaker, with oil production rising 1.3 percent and natural gas production falling 6.7 percent, compared to a year ago, data released by the State Statistics Service showed.

Overall extraction of natural resources rose 1.1 percent, however, improving from 0.6 percent growth in March. Manufacturing output was up 3.9 percent and utilities down 1.9 percent.

Production of some foods, such as butter, rose by nearly a third, while output of jackets was up by nearly two-thirds.

Steel manufacturing rose modestly, with iron production up 1.5 percent in annual terms. But the auto industry saw mainly declines, with passenger car production falling 0.2 percent and down 28.2 percent for buses.

The overall industrial output figure for April far outstripped the 0.9 percent growth expected by analysts polled by Reuters and a manufacturing poll done by HSBC, which saw manufacturing activity shrinking for the sixth month in a row.

Analyst at Uralsib in Moscow had expected a 1.1 percent rise month. They attributed part of the surprise to the rouble, which in April traded nearly 10 percent weaker against the dollar compared to the beginning of the year.

"Because of the weakening of the rouble and increased inflationary expectations the population began to actively spend their savings on retail purchases," said Olga Sterina, an analyst at Uralsib.

"I think that it not only stimulated demand for imported goods but also probably for domestic goods."

The central bank, which had a target of 5 percent inflation for this year, last month said it will be difficult to meet that target and forecast consumer prices would rise by 6 percent in 2014.

Russia's annexation of Crimea in March and its continued involvement in Ukraine's political crisis have led to capital flight of $63.7 billion in the first quarter and sanctions that many economists say have hindered economic growth.

Former Finance Minister Alexei Kudrin said earlier this week that sanctions imposed by the West would cost Russia 1 percentage point of GDP this year, or about 700 billion roubles ($20 billion).

The government last week adopted a "conservative" scenario of 0.5 percent gross domestic product growth this year. The finance ministry said, however, that even half-percentage-point growth is an ambitious target.

Uralsib's Sterina said the April production numbers should not be taken as proof of a reversal of fortunes in the Russian economy.

"It's too early to talk about a new trend," she said. "Data for one month is unlikely to be related to ... a revival (of the economy) ... The economy is still pressured."

Source: au.news.yahoo.com

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