Clarion Partners - Owner's Engineer

Serbia: Electricity production offset boosts industry

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The negative industrial production sentiment from October (-0.2% mom) was broken in November, as according to the seasonally adjusted mom data industry increased by 0.5% mom.

Though, manufacturing evidenced negative drift declining by 2.0% mom per seasonally adjusted data (Oct: -0.4% mom). Furthermore, in annual terms industrial production in November moved to positive territory (+2.2% yoy) after sliding by 1.0% yoy in October, driven by boosting electricity, gas, steam & air conditioning supply (+30.5% yoy) having app 20% share in the industry basket.

The production of coal and electric energy within the Electro-Plants-Serbia (EPS) reached the historical maximum due to modernization of the two plants (Kostolac and Kolubara, overshooting the planed production by 9%. On the other side, draught delivered water power plants undershooting the planed production by 12%. Further, mining and quarrying sector also gave positive impulse increasing by 15.5% yoy (having app 7% share in the industry basket).

However the key industry, manufacturing plunged significantly (-4.7% yoy) after falling by 3.7% yoy in the month before. Within manufacturing key downside drivers were: textile (-23.3% yoy), leather and related products (-20.2% yoy), furniture (-38.7% yoy), basic metals (-13.6% yoy) and apparel (-12.6% yoy).

However, very few industries kept the upside drift like: computer, electronic and optical products (+26.2% yoy), fabricated metal products exc. machinery and equipment (+8.4% yoy), chemicals and chemical products (+5.3% yoy) etc.

In the period Jan-Nov 2011 comparing to the same period previous year industrial production recorded increase by 2.1% ytd. Analyst assessment: As the year end approaches, fewer and fewer industries are staying in the positive zone. According to the November data volumes fell in 17 industries having 51% share in the industrial production basket comparing to 12 industries having positive trend. The vicious circle has started, banks are cutting new lending volumes due to growing non-performing loans especially in the real sector and increasing illiquidity, while subsidized program run out already in July and real economy was left out of needed funding. Fortunately, the government will continue with the subsidized package in 2012, while new funding from EIB, especially for the SME segment, that is usually hardly hit by the crises, have been provided. Despite all difficulties, we view that industry will remain in the positive zone, both in 2011 (+3.0% yoy) and 2013 (+1.5% yoy).


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