Russia ends 2016 with strong PMI indicators, economic recovery underway

Russia ends 2016 with strong PMI indicators, economic recovery underway
Russia finishes 2016 with strong PMI index scores
By bne IntelliNews January 2, 2017

Russia turned in the strongest manufacturing Purchasing Managers Index (PMI) results for 69 months with all the components going comfortably into the black, suggesting an economy recovery is starting to build some momentum.

“The health of Russia’s private sector economy improved at the fastest pace for 50 months in December, highlighted by the Russia Composite Output Index rising to 56.6. Up from 55.8 in November, the latest figure capped off the strongest quarter of growth for four years,” Markit said in a press release.

The Markit Manufacturing PMI was up to a 69-month high of 53.7 in December, up fractionally from November’s 53.6, and still well above the 5 no-change score.

“The latest reading thereby signalled a solid improvement in operating conditions in Russia’s manufacturing sector. Moreover, the average PMI for the fourth quarter (53.2) was the strongest for over five-and-half years,” Markit said.

Services did even better and were quicker to recover than manufacturing. Russia’s service sector ended 2016 by growing at the fastest pace for more than four years. After adjusting for seasonal factors the Markit Russia Services Business Activity Index rose to a 49-month high of 56.5 in December, up from November’s 54.7. The three-month average to December was the sharpest increase since the first quarter of 2013 as Russian service providers cited stronger underlying demand as the key factor driving growth during December.

Businesses reported across the board strengthening new orders and accumulation of unfinished work, albeit at a slightly slower pace. The survey also found that job creation was growing at the fastest rate since March 2011.

On the price front, the rate at which input costs increased continued to outstrip a subdued rise in final selling prices. Higher metal prices contributed to a robust increase in average cost burdens at Russian manufacturers. Consequently, firms raised their selling prices, and at the sharpest pace for six months.

Russian goods producers raised their production at a substantial pace during December. Although the rate of increase eased slightly from November’s 68-month high, it continued to outstrip the historical average. At the sub-sector level, the sharpest rate of output growth was seen at investment goods firms. Russian goods producers continued to report a fall in their pre- and post-production inventories during December. However, the respective rates of decline eased since the previous month.

The recovery is mainly restricted to and driven by the domestic market. Exports are still contracting, despite the devaluation of the ruble, but the rate of contraction was the smallest in 40 months, says Markit. Firms reported a fall in new business from abroad.

Growth in services was if anything even more robust. All six services sub-sectors that Markit monitors experienced output growth in December, with financial intermediation registering a particularly sharp increase in output.

New business growth has been strengthening and the rate of expansion was the quickest since August. New orders increased at the most substantial rate at Hotels & Restaurants. Moreover, new order growth remained marked in Russia’s goods producing sector.

Meanwhile, employment levels in Russia’s service sector edged closer to stabilisation in December, highlighted by the respective seasonally adjusted index posting just below 50.0. Conversely, Russian manufacturers ended a five-month trend of job shedding in December by raising their employment at the quickest pace for over five-and-a-half years.

Input costs faced by Russia’s service sector companies rose at a marked pace. Panel members linked higher fuel costs to the sharpest increase in average cost burdens since August. Consequently, output charges increased for the eighty-fifth month straight in December. That said, firms increased their selling prices to a comparatively weak extent.

Markit economist Samuel Agass said: “Russia’s service sector upturn moved into a higher gear at the end of 2016, as December’s headline PMI rose to a 49-month high after a second successive pick-up in business activity growth was recorded. Supported by a faster increase in new business orders, service providers registered a marked rise in output and at a rate that continued to outstrip its historical average. In the manufacturing sector, a substantial rate of growth was sustained, and at a pace sharper their services counterparts. As a result, Russia’s private sector upturn quickened to a 50-month high.”