OREANDA-NEWS. July 19, 2010. Russia’s industrial output grew 9.7% YoY in June, which brought the 1H10 industrial growth figure to 10.2% YoY, according to Rosstat data released. Rosstat also reported producers’ deflation in June at -3.1% MoM, reported the press-centre of OTKRITIE Financial Corporation.

View: We see the June statistics as sobering news for the market, which we think was overly optimistic after the last month’s revision of industrial data.  Industrial output was 2% below the Bloomberg consensus of 11.7%, though only marginally below May figure in seasonally adjusted terms. From our standpoint, this is further confirmation that the recovery remains modest and that local demand is still fragile.

The decline in producer’s prices was also not as negative as it might appear. First, it follows in the wake of 3.2% and 2.7% MoM PPI growth for the previous two months, and in YoY terms it is still 9.8% compared with the 5.8% CPI index. Second, the deflation is mostly concentrated in mineral extraction where prices have dropped 10% MoM, thanks to a -12.5% decrease in oil prices. Such a decline in prices could be supportive for other sectors of economy.

Meanwhile, there was still a minor deflation in a number of manufacturing industries, including the machinery and equipment segment, which confirms the instability of demand. Our conservative forecast of 3.1% GDP growth for 2010 remains intact.