As the low base effects fade, the growth in industrial production (IP) is showing signs of moderating year on year. IP growth in July slowed to 6.8% y/y vs. Bloomberg consensus expectations of 8%. 

The IP print for July contrasted starkly with the rates of 10.2% y/y and 11.9% y/y reported in June and May respectively. Manufacturing drove the deceleration, up only 3.4% y/y in July vs. 7.6% y/y in June and 12.1% y/y in May. Mining and quarrying grew 11.6% y/y vs. 13.7% y/y in June and 12.1% y/y in May as it continues to recover from OPEC+. Electricity, gas and AC rose 8.5% y/y in July vs. 8% y/y in May-June, while water and sewerage rose 16.7% y/y vs. c. 30% y/y in 2Q21.

On an SA basis, IP continued to stagnate for the second month in a row (-0.1% SA month on month in July vs. -0.2% SA m/m in June and +0.9% SA m/m in May). Manufacturing contracted 0.5% SA m/m, exhibiting zero or negative growth rates for the fourth month in a row. We saw increased production in food, beverages and tobacco, and machinery and equipment, while textiles, clothes and intermediary goods all showed signs of moderation.

Analysts say they see a moderation in the IP recovery as the low base effects of 2020 fade, and IP is starting to underperform vs. market expectations. While a further rebound in external demand could push export-oriented energy industries upwards and an additional consumption stimulus could temporarily raise demand for consumer goods, the spending of excess savings amid stagnating incomes and rising prices could constrain any further expansion in the consumer and investment sectors. IP growth in 2Q21 matched expectations (+10.1% y/y), and analysts expect it to moderate to 6.4% y/y in 3Q21.