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In October, Russian industrial production did not deteriorate that much in annual terms ( 3.6% yoy versus -3.7% yoy in September), but, taking seasonal and calendar effects into account it continued to contract (-0.1% mom sa vs 0.6% mom sa in September). An additional drag to IP came in the form of a couple of manufacturing industries which target the domestic consumer (housing equipment, furniture, automobiles), but failed to be replaced with production of capital goods and intermediate products (machinery equipment, chemical products, metals).
Surprisingly, fixed asset investments improved for the third month in a row (-5.2% yoy in October versus -5.6% yoy in September) despite pessimistic consensual views (-6.3% yoy) in the market and dashed hopes of a recovery of oil prices (Brent is trading close to six-year lows).
"We doubt that investments by large enterprises are fully driven by base effects considering that, as over H1 15, a positive correlation emerged between them and industrial profits. This might be tied to one-off projects or more intensive maintenance capex required by domestic suppliers. Nevertheless, in devaluation-adjusted terms, the local profit cycle reflects a structural deceleration of the economy and inefficiently slow re-allocation of capital between commodity and non-commodity sectors", says Societe Generale.
