The latest IHS Markit manufacturing PMI for August was slightly up m/m to 48.9 from 48.1 in July, but still below the 50 no-change mark, the consultant said on September 3.

The result underlines the fragile nature of the economic recovery that has hurt industrial producers, although service providers have been doing much better and have been keeping the composite PMI index in the black for this year.

“The downturn was driven by marginal falls in both output and new orders. Consequently, both employment and backlogs declined further amid reduced pressure on capacity. Exports, however, rebounded from July's slight fall, rising at the quickest pace since April. On the price front, rates of both input cost and output charge inflation accelerated,” Markit said in a press release.

Inflation has passed bottom and has started to rise again, breaking above the 3% level for the first time in a year at the end of August. The rise in inflation is partly due to the pass through from a 17% devaluation the ruble has suffered this year and partly from a 2pp hike to the VAT rate to 20% that was implemented in July that will hurt business.

“Rates of both input price and output charge inflation picked up following July's recent lows. Moreover, the pace of input cost inflation was marked and accelerated to the second-quickest in almost three years. Panellists commonly attributed the rise in costs to recently-announced changes in VAT, exchange rate movements and higher raw material prices,” Markit said.

Output levels declined for the second month running in August, albeit at a softer pace, according to Markit. “Anecdotal evidence suggested the latest fall was due to lower new order volumes and a drop in client demand. That said, the decrease in production was only marginal overall,” Markit said.

In line with weaker domestic client demand, the level of new business received continued to contract. The rate of the downturn eased from July, when it reached the quickest for over three years, and was marginal overall, Markit reports. In contrast, demand from clients based abroad increased in August. The rate of growth was the fastest since April despite being only slight.

The rate of job shedding eased to a marginal pace that was the weakest in the current four-month sequence of decline. Backlog depletion, however, quickened and was the fastest since January 2015.

Finally, business confidence improved in August. The degree of optimism was the highest since April and partly driven by new product development.

"August data signalled a further, albeit weaker, deterioration in manufacturing performance. Output and new orders continued to decrease, with new business from abroad giving a glimmer of positive news by increasing marginally,” said Siân Jones, economist at IHS Markit, which compiles the Russia Manufacturing PMI survey. 

"Following a downturn in client demand, firms reduced their workforce numbers and backlogs depleted further. Notably, outstanding business fell at the fastest rate since January 2015. Panellists also continued to register marked rises in input prices and output charges, with rates of inflation accelerating in August. Recently-announced changes in VAT, exchange rate movements and higher raw material costs were commonly mentioned. With all that said, manufacturers indicated an improvement in business confidence, with optimism about future output at its highest since April."