Industrial output increased by 1.8% y/y (wda & sa) in February, accelerating from 0.3% y/y (revised from 0.9% y/y) a month before, according to figures of the INSSE. We remind that domestic industry marked its first fall since May 2016 at the end of 2018, dragged down by mining and manufacturing contractions. Industrial output slightly picked up in January, mainly on the back of a rebound in metals extraction and manufacturing of road transport vehicles, probably supported by new external orders rebound in those sectors. The acceleration in February was also backed by a stronger growth in road transport manufacturing. In addition, production of non-metals, paper and wood reported double-digit increase in February, most likely on the back of some improvement in domestic demand, because those sectors mostly sell locally. Nevertheless, industrial growth remained low in February, hindered by production falls in mining and utilities.
Detailed prints show that manufacturing remained in a bad shape in February. Numerous sectors were still reporting production falls, some of them rather severe. Apparel, textile and furniture output decreased with double-digit paces in February, probably because part of companies activating in those fields could no longer afford another minimum wage increase and reduced their activity. Non-food consumption was still robust in February so output contraction was unlikely grounded on demand developments. On a slightly positive note, production of chemicals and pharmaceuticals reported annual increases, in spite of rising oil and gas prices. Looking at mining, only metals extraction increased y/y, although slightly, in February. Metal extraction pushed up mining output into positive territory in January, with a double-digit rise, yet it softened significantly in February. In addition, coal extraction kept on falling, while oil and gas entered negative territory, probably because producers are discouraged by the government’s fiscal policy in energy sector. Utility production also fell, despite consumption’s robust growth in February. That was very likely also on the back of the new energy taxes and explains which electricity import surged in the first months of 2019.
Generally, industrial activity slightly improved in February, but remained weak. The modest rebound was most likely sustained by some rebounds in new external orders in a small number of fields. Domestic demand was probably stronger in February, but we think it was covered mostly by imports, because local output in some key sectors was strongly affected by a tighter fiscal regime introduced as of the beginning of 2019. The new sales tax in energy and the new measures regarding electricity and gas prices affected the entire domestic industry, which became even more dependent on external developments, in our view. However, even with external demand recovery, industrial output rebound would probably remain hampered by higher costs with labor and fuels, too.