Russian manufacturing continues its strongest expansion since 2011 in March with the Markit PMI score of 52.4, almost the same as the previous month’s 52.5, while positive sentiment amongst Russian manufacturers reached a 22-month high.
Russia’s manufacturing has been recovering in the last year partly on the back of the steep devaluation of the ruble that made Russia goods more competitive. However, industrial production took a hit and contracted in February by 2.7% and still has not built up enough momentum to ensure a strong economic recovery.
Nevertheless, manufacturing conditions continued to improve solidly in March with little change in the growth rate from February. Markit’s latest survey suggests further growth in output and new orders going forward even if the level of employment saw a slight decline. At the same time, new export orders also fell in March, following a trend begun in September 2013. In general, the government’s import substitution plan has been a failure.
The average PMI figure for the first quarter of 2017 was the same as for the fourth quarter of 2016. These two quarters have seen the joint-strongest growth rates since the first quarter of 2011.
“The growth rates of output and new orders continued to be solid with fractional accelerations seen in both. Panellists noted increased client bases and greater demand as having been influential. March data signalled the eleventh month of growth in output and the eighth month of growth in new orders. Backlogs of work also expanded for the sixth consecutive month in March,” Markit said in its press release.
The pace of contraction in new exports remained marked. The latest survey data indicated the 43rd consecutive month of decline in new export orders, and the strongest rate of contraction for five months.
Input prices paid by Russian manufacturers continued to rise in March. Panellists noted that reduced supplier stocks and increased world prices for materials were influential. Materials such as metals (including steel), chemicals and plastics were recorded as having risen in price in March. However, the overall rate of inflation remained weaker than the long-run survey average.
“Output prices fell for the second month running. This was the first time there has been consecutive months of contraction in output prices since the second quarter of 2009. Lower charges were partly linked to competition,” Markit reports.
Expectations for output levels in the next 12 months remained strong, according to the respondents from Markit’s survey. “Sentiment reached a 22-month high in March. Panellists cited expectations of expanded demand and new product development as explanations. Positive attitudes were at a level greater than the five-year series average,” reports Markit.
Commenting on the Russia Manufacturing PMI survey data, Sian Jones, economist at IHS Markit, which compiles the survey, said: “The Russian manufacturing sector continued to expand solidly in March. The latest PMI data suggest that the sector will contribute to overall economic growth this year, with IHS Markit currently forecasting a 1.0% rise in GDP over 2017 as a whole. Optimism in manufacturing also reached a 22-month high. Domestic demand has proved strong so far in 2017, though weak goods exports remain a concern. The fall in output prices will be welcomed by the central bank as it takes steps to meet an inflation target of 4% by the end of 2017.”