Russia’s manufacturing sector PMI returned to marginal growth in May after two months of contraction, according to the latest Purchasing Managers’ Index data from S&P Global, published on May 31. (chart)

The seasonally adjusted S&P Global Russia Manufacturing PMI rose to 50.2 in May from 49.3 in April, signalling a slight improvement in operating conditions, says S&P Global. The result is only just above the 50 no-change benchmark. 

The uptick comes as the Russian economy starts to cool and growth slow thanks to the Central Bank of Russia (CBR) policies to stamp on growth in order to bring down painfully high and very persistent inflation. Indeed, the Russian economy contracted in real terms in the first quarter, despite posting 1.7% growth in nominal terms.

The expansion in the manufacturing sector was driven by a modest rise in new orders, which manufacturers attributed to stronger domestic demand and the acquisition of new clients. “Companies stated that greater new sales stemmed from stronger client demand and the acquisition of new customers,” S&P Global noted. However, the growth remained below the long-run series average and was largely offset by continued weakness in production.

Despite the rise in new business, output levels declined for the third consecutive month, albeit at the slowest pace in the current sequence. Panellists cited shortages of key inputs as a constraint on production capacity. “Panellists suggested that shortages of some items were hampering production capacity,” the report said.

Foreign demand remained subdued, with new export orders falling for the third month in a row, although the rate of decline was only marginal. Supplier delivery times were broadly unchanged from April, as easing demand for inputs was countered by ongoing logistics challenges and material shortages.

Manufacturers reduced their input buying in May, leading to a further depletion of stocks of both purchases and finished goods. The report noted this was the third decline in purchasing activity in the last four months. “Pre- and post-production inventories contracted at slightly quicker rates as firms utilised holdings to supplement order requirements,” S&P Global said.

Input costs and output charges rose at faster rates, but inflationary pressures remained historically subdued. “Average cost burdens increased at a faster pace, but one that was the second-slowest since August 2022,” the report stated. The rise in output charges was also among the weakest seen over the past two years.

Russian manufacturers expanded their workforce slightly in May to accommodate greater demand. Firms attributed the hiring to the need to increase capacity, which also helped reduce backlogs of work for the fourth consecutive month.

Although optimism for future output declined to a three-month low, it remained above the long-term average. “Underpinning confidence were hopes of an improvement in demand conditions and planned investment in production processes and product ranges,” according to S&P Global.