Russia's PMI falls to eight-month low

Russia's PMI falls to eight-month low
Russia's manufacturing PMI index falls to eight month low
By bne IntelliNews April 29, 2016

The fall in Russia's manufacturing PMI index to its lowest level in eight months points to an intensifying slow down in industry, Markit, which compiles the index, said in a press release.

"Behind April's downturn was a further contraction in production, the sharpest since May 2009. Demand conditions deteriorated further as firms struggled to adjust to a lack of liquidity amongst their clients. Worryingly, the drop in consumption for Russian goods has allowed manufacturers to make inroads into their outstanding business levels which, without any pressures on capacity, led to a further decline in employee numbers," Markit said.

The index fell to 48.0 in April, down from March's reading of 48.3, which points to "an intensifying downturn in the goods producing sector of Russia", the company added. Any score below 50 represents a contraction.

"Production contracted at the sharpest pace since May 2009, with incoming new orders also declining. Work-in-hand continued to be depleted, leading to another drop in employee numbers while price pressures in the sector persisted for another month, as both input costs and output charges rose," Markit found.

Russia's economy continues to slow despite some green shoots on the consumer front where real incomes have gone into the black in the last two months – but it is still far too early for this to make any difference in manufacturing. At best a recovery in incomes, if it is sustained, will only show up on the PMI index in the second half of this year, say economists.

"After the IMF recently downgraded their 2016 forecast for Russian GDP growth to -1.8% from -1.0%, latest PMI data for April brings further disappointing news to policymakers. The headline figure reinforced the predictions made by the IMF as it slipped to an eight-month low, pointing to more challenging business conditions for Russian manufacturers," Markit said.

A significant contraction of output in Russia's manufacturing sector caused the drop in the headline figure during April, the sharpest decline since May 2009. All the monitored sub-sectors also reported a drop. As a result, finished goods stock depleted for the twenty-fourth successive month, albeit at a modest pace.

Demand is also down sharply, with Russian manufacturers reporting a broad fall in new orders in April. While the decline in foreign demand was marked, domestic demand is holding up better with the fall in new domestic orders falling also at what Markit describes as a "relatively modest pace".

There was some evidence that contracting new orders reflected a lack of liquidity amongst customers, which may be caused by the problems the banking sector is facing.

Falling new order intakes meanwhile allowed manufacturers to work through their outstanding business in April. A lower level of work-in-hand has been reported in every month since March 2013, although the latest decline was the weakest in one year.

The squeeze on business was also apparent in the labour market, where unemployment ticked up mildly to 6% from 5.8% of the working population – a level it has been at for well over a year. Most of these sacking are concentrated in the Russian goods producers, which have cut back on their employee numbers for the thirty-fourth successive month in April. However, the rate of job shedding was the weakest since last November, reports Markit.

Latest survey data pointed to a further fall in buying activity in Russia's manufacturing sector during April. Moreover, all three monitored sub-sectors reported broadly similar reductions in input buying.

Meanwhile, pre-production inventories continued to decline and, although the rate of decrease eased to the softest in three months, it remained marked overall.

Manufacturing firms operating in Russia continued to raise their output charges during April, extending a trend which has been observed in each of the past nine months. The rise was driven by a further increase in average cost burdens, reports Markit.

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