Russian industrial production shrank the most since the economic collapse of 1998 in November as the global slowdown reduced demand for steel, pipes and fertilizers, pushing the nation to the brink of recession.
Output contracted 8.7 percent after growing 0.6 percent in October, the Moscow-based Federal Statistics Service said today. The result was about 4 percentage points below the lowest forecast in a Bloomberg survey. Production shrank for the first time since new methodology was introduced in 2003 and the biggest decline since 1998, when the government defaulted on $40 billion in debt.
Russia is not in recession “yet” and the economy will grow by as much as 3 percent next year, Finance Minister Alexei Kudrin said yesterday. Barclay’s Capital said on Dec. 10 that the economy will sink into recession next year, as eight years of growth averaging above 7 percent comes to a halt.
“This was triggered by the production cuts in the steel sector and this affected other, related areas: steel products and mining,” Vladimir Osakovsky, chief economist at UniCredit Bank, said before the official data release. The Interfax news service reported the same numbers yesterday, citing an unidentified government official.
The global financial crisis has shattered the economic growth outlook for emerging markets and global trade will go into reverse for the first time in 25 years next year, the World Bank predicted on Dec. 9. The contraction was almost five times sharper than the median forecast of 12 economists surveyed by Bloomberg for a drop of 1.8 percent. Production fell a monthly 10.8 percent compared with growth of 2.8 percent in the previous month.
“In conditions of a global economic crisis, this systemic contraction in demand will, of course, affect Russia,” Kudrin said yesterday.
The central bank pared its defense of the national currency for the second time in a week yesterday, to slow the drain on Russia’s reserves, which are being used to prop up the ruble. Investors have withdrawn about $211 billion from the country since August, BNP Paribas SA estimates.
Russia’s benchmark Micex Index fell 0.50 percent at 10:45 a.m. The ruble, which is managed by policy makers against a basket of dollars and euros, added 0.1 percent to 27.5920 per dollar by 10:25 a.m. in Moscow, from 27.6212 yesterday. Against the euro, the ruble weakened the same amount to 37.8476 from 37.8093 yesterday.
Manufacturing fell an annual 10.3 percent compared with growth of 0.3 percent in October, as steel-pipe production dropped an annual 36.9 percent and coking coal output fell 38.7 percent, the service said. Truck and car production dropped 58.1 percent and 7.2 percent respectively.
OAO Severstal, Russia’s largest steelmaker, cut output by half and plans to reduce spending 20 percent in 2009 as Japan and Europe enter a recession and the U.S. suffers its worst slump since the Great Depression. The steelmaker, the fourth-largest producer in the U.S., will delay $8 billion of investments planned for 2009 to 2011.
Ford Motor Co. said on Dec. 8 it will close its factory near St. Petersburg between Dec. 24 and Jan. 21 to reduce output because of falling demand. Ford, the first international carmaker to produce in Russia since the fall of the Soviet Union in 1991, will pay affected workers two-thirds of their salaries, the company said.
Fertilizer production fell by an annual 51.6 percent as OAO Uralkali, Russia’s second-largest potash producer, reduced output by half and lowered its forecast for fertilizer sales in the fourth quarter.
Signs are emerging that social discontent is on the rise as the economy, dependent on oil and raw materials, slows faster than other emerging markets like China and India. Thirty-nine percent of Russians expressed growing dissatisfaction with the government, according to a November poll released yesterday by the Moscow- based Public Opinion Foundation. In some regions, the level of public discontent is more than 50 percent, it said.
“I’m still hoping that we won’t have mass unemployment,” Prime Minister Vladimir Putin, 56, said in a nationwide call-in show this month. “Although looking at the labor market, we can of course expect more people to lose their jobs for some time.”
Unemployment will rise by 10 percent to 11 percent next year, from the current 6.1 percent, according to VTB Capital.
As industry shrinks, the nation’s consumer boom is set to stumble, said Nikolai Kashcheev of MDM bank in Moscow. Wage arrears jumped 33 percent in October.
“I’m not sure retail trade will be able to hold GDP back from a general recession,” he said. While industries including home repair, restaurants and tourism remain buoyant, “the situation in the first quarter next year will be much less pleasant,” Kashcheev said.
Mining and quarrying contracted an annual 1.6 percent in November and 5.8 percent in the month, the statistics service said. Electricity, gas and water output shrank 9.3 percent in November compared with growth of 2.6 percent in the previous month.
Total industrial production increased an annual 3.7 percent in the year through November.
Reuters offers a concrete example of Russia’s industrial horror story:
General Motors is planning to halt assembly lines and shorten work weeks at its new Russian car plant in the coming months partly due to a sharp drop in demand, a company spokeswoman said on Monday.
The news comes less than a week after figures showed a 15 percent drop in foreign car sales in November this year compared with November 2007, the first decline ever recorded by the Association of European Businesses.
Russian sales of GM’s popular Chevrolet brand shrank 11 percent for the month. [ID:nL929636]
Car makers blame the slowdown on a shortage of cheap auto loans cause by the credit crunch in Russia, which had been set to become the largest car market in Europe next year.
The GM spokeswoman, Maria Alexandrova, said the first suspension from Dec. 20 to Jan. 11 will be used to make necessary repairs at the plant, which began assembling the Opel Antara and the Chevrolet Captiva last month.
The second halt will take place from Jan. 26 to Feb. 15 and has been prompted by the situation on the market, Alexandrova said.
After resuming operations on Feb. 15 the factory of about 1,000 workers, will switch to a three-day work week, she added.
At a cost of $300,000 million, the plant was designed to produce 70,000 cars per year and could have been expanded to produce 100,000 annually if demand had remained strong for GM’s best-selling vehicles.
Ford Motor Co. (F.N: Quote, Profile, Research, Stock Buzz) has already decided to cease production at its Russian factory for one month as of Dec. 24. The carmaker is also delaying the release of its Mondeo model in Russia until March of next year.
U.S. automotive giants GM, Ford and Chrysler [CBS.UL] — known as the Detroit Three — have all been badly battered by the global financial crisis and have turned to the government for a bailout package that was rejected this month by the U.S. Senate.