The government Thursday reported a continuing decline in Russia's industrial output and said the heavy-machinery sector was in "critical" condition, but a top official said the economy also showed some encouraging trends.Statistics released at a cabinet meeting showed production in the first five months of the year to be 26 percent below last year's level, a much steeper decline than the 16 percent drop registered in 1993.First Deputy Prime Minister Oleg Soskovets, who chaired the meeting, said the situation in the sector was "critical" and warned officials they would be held accountable for the collapse of heavy-machinery industry, Interfax reported.However, President Boris Yeltsin's chief of staff, Sergei Filatov, said economy was showing positive signs, particularly in the development of trade and banking, "the most important areas for setting up a market economy in Russia." Filatov, who spoke to reporters in the northern Russian city of Syktyvkar, said the government must intensify efforts to tighten the rule of law and stimulate investment and restructuring if it wanted to stop the production decline. Otherwise, he said in comments carried by Itar-Tass, the country will enter "a prolonged depression."According to figures from the State Statistics Committee, the chemical and petrochemical industry was running 35 percent below last year's figures, light industry 41 percent and the heavy-machinery industry was the hardest-hit, running 45 percent below levels a year ago.The statistics committee report showed that fuel industry output was the most stable, declining by only 15 percent in the first five months of the year.About one-quarter of Russian factories, 5,500 in all, shut down for all or part of May, according to the report. More than half of them belonged to the heavy-machinery sector.Last month President Boris Yeltsin criticized the government for moving too slowly on economic reforms after the State Statistics Committee reported a 25 percent decline in industrial production during the first four months of the year. Yeltsin has since signed a series of economic decrees designed in part to counteract the decline.(AP, MT)