Russia's import substitution is supporting local production

Manufacturing production data shows that certain sectors have started benefiting from import substitutions as western sanctions and Russia's counter measures have distorted the market. Foods production expanded 1.4% y/y and 8.1% m/m in September while continuing to grow 1.9% y/y in 9M. As in 2014, Russia has banned imports of certain foods items from the countries that introduced sanctions against it, the best performers being meat production (up 18.0% y/y), frozen fish processing (up 15.7% y/y) and cheese production (up 38% y/y). At the same time, rouble devaluation has supported exporters, helping chemical production to grow 9.3% y/y in September and, for instance, passenger car tyre production to expand 5.9% y/y. 

"We expect local demand and the depreciated rouble to support industrial production further in the future while a lack of capacity remains a major concern in the medium term", says Danske Bank.

However, as construction growth stays in negative territory, production sectors linked to industrial construction are losing the most. Metal and metal parts production was down 3.7% y/y in September and construction materials are following the same trend.