Russian July Output Rises 3.2%, Less Than Forecast

By Alex Nicholson

Aug. 18 (Bloomberg) -- Russian industrial production grew at a slower pace than economists forecast in July as oil and gas production fell and manufacturing growth remained weak.

Output rose an annual 3.2 percent, following a 0.9 percent advance in June, the Federal Statistics Service said today. The median forecast of 16 economists in a Bloomberg survey was for 3.8 percent growth. Production rose 3.3 percent from June.

``The softening may not be as temporary as we thought,'' said Yevgeny Nadorshin, an economist at Trust Investment Bank in Moscow. ``The pace of manufacturing growth is very low, and the picture with mineral extraction isn't pleasant.''

Russian manufacturers are finding it harder to finance operations after the collapse of the U.S. subprime market pushed up borrowing costs worldwide, threatening their ability to boost output, Nadorshin said. Industrial investment rose 10.8 percent in June, the slowest pace in more than two years. The Economy Ministry forecast economic growth to slow to 7.8 percent this year after expanding 8.5 percent in the first quarter, the second- highest rate since 2000.

Russia's biggest carmaker, OAO AvtoVAZ sold 5 billion rubles ($203 million) of seven-year bonds in May 2007 at a yield of 7.8 percent. When the company sold more bonds this May it sold 1 billion rubles ($41 million) of debt, with a yield of 9.2 percent for one year, Bloomberg data show.

OAO Acron, Russia's third-biggest producer of nitrogen fertilizers, said on July 29 that it postponed a share sale in London that may have raised as much as $715 million, citing market conditions.

Ruble, Bonds

Emerging markets around the world are facing cooling growth and demand, while food and fuel prices surge. The Reserve Bank of India said containing inflation is its ``overriding priority'' and forecast the economy to expand 8 percent this year, the weakest pace since 2004.

Chinese industrial production grew in July at the weakest pace in 16 months amid faltering orders for Chinese exports. China's economy grew 10.1 percent in the second quarter, the fourth consecutive slowdown.

Though manufacturing increased an annual 4.6 percent in July, compared with a 0.6 percent advance in the previous month, mining and quarrying fell 1.8 percent, compared with growth of 0.6 percent in June, the service said. Crude oil and gas condensate production fell 1.9 percent, compared with a year ago.

Oil, Gas Revenue

Oil and gas revenue will fall from 8.8 percent of gross domestic production in 2007 to 3.1 percent in 2023, Alexei Kudrin said yesterday as old fields go out of production ``en masse.''

Even if new fields are developed at the fastest possible schedule, production would only increase ``slightly,'' he said.

Production of windows grew by 44.7 percent and tractor output increased by 45 percent, the service said. Cement production dropped 8.2 percent.

Electricity, gas and water output increased an annual 5 percent, compared with 4 percent in the previous month.

Economists argued that productivity suffered in June as millions celebrated the national team's performance in Europe's most-prestigious soccer tournament, where Russia unexpectedly progressed to the semi-finals.

The ruble climbed 0.2 percent to 29.7240 against its currency basket by 11:30 a.m. in Moscow, from 29.7774 on Aug. 15. It gained 0.5 percent against the dollar to 24.4880, and fell 0.1 percent to 36.1246 per euro.

Government bonds were mixed, with the yield on the 7.5 percent note due March 2030 at 5.67 percent. The yield on the 8.25 percent security maturing in March 2010 gained 2 basis points to 5.79 percent.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.