The headline seasonally adjusted IHS Markit Russia Manufacturing PMI registered 50.4 in April, down slightly from 51.1 in March, to signal the slowest improvement in operating conditions across the Russian manufacturing sector in the current four-month sequence of expansion. Any result above the 50 no-change market represents growth, but April’s growth was marginal.
Manufacturing growth drove a 1.1% increase in industrial production in March, the first growth in a year, but the forward looking PMI suggests that growth is already running out of steam, as overall growth was only fractional in April, reports Markit.
“April PMI data signalled a fractional improvement in the health of the Russian manufacturing sector. The overall speed of recovery slowed from that seen in March following softer output growth and a renewed decline in new orders,” Markit said in a note.
At the same time, input costs soared once again, as supplier delivery delays and logistical issues weighed on vendor performance, Markit reports.
As bne IntelliNews has reported, inflation has been surging in recent months, driven by rising food costs and the pass-through from last year’s devaluation. Inflation is thought to have peaked in March and was down to 5.5% in mid-April but inflationary pressure and inflation expectations remain high. The Central Bank of Russia (CBR) has responded by hiking rates in March (25bp) and April (50bp). Now manufacturers are saying the same thing.
“One of the quickest increases in cost burdens for six years reportedly led firms to raise their selling prices at the sharpest rate since February 2015 in an effort to pass on part of the hike in input prices,” Markit said.
But it seems that business owners believe the inflation is a temporary phenomenon and will fade, and remain positive on the outlook for the rest of the year. Markit’s findings are consistent with the recent Rosstat survey that found business confidence is at a multi-year high.
“Despite rising inflationary pressures and subdued demand, Russian manufacturers remained upbeat regarding the outlook for output over the coming year, as business confidence ticked up to the highest since January 2020.”
The headline macroeconomic numbers are still painting a mixed picture and the distortions due to the large moves last year are starting to kick in, making it difficult to understand what is going on, but economists report household consumption is high and demand and credit are growing.
Output across the goods-producing sector continued to increase in April, says Markit, thereby extending the current sequence of growth to four months. That said, weak client demand reportedly weighed on the upturn in production, which slowed to only a marginal pace.
“Meanwhile, panellists commonly stated that weak customer demand led to the first contraction in new orders at manufacturers in the year-to-date. The marginal fall was linked by some firms to lower purchasing power at clients amid strong inflationary pressures,” says Markit.
New export orders also declined at the start of the second quarter, albeit at a softer pace than in March. Some manufacturers commented on a boost from the gradual easing of lockdown restrictions in key export markets.
Supply chain disruptions and transportation restrictions were the main factors contributing to a strong deterioration in vendor performance during April. Lead times lengthened to one of the greatest extents since the second quarter of 2020.
Goods producers noted that supplier delays and shortages of raw materials and components pushed up input costs in April. The rate of cost inflation was among the fastest for six years and marked overall.
As firms sought to pass on greater cost burdens to clients, selling prices increased robustly at the start of the second quarter. The rise in output charges was the sharpest since February 2015.
In an effort to improve cash flow, input buying was broadly unchanged in April. Moreover, firms registered depleted stocks of purchases and finished goods as current inventory holdings were used to supplement production and fulfil sales.
After the economy started to recover last autumn as the lockdown restrictions were removed, the labour market began to recover and unemployment to fall from a peak of 6.4% in August last year to the current 5.5%. However, Markit reports that the pace of new hires has slowed in the last month.
“Employment continued to rise at only a fractional pace in April, as backlogs of work and pressure on capacity remained muted. The latest fall in work-in-hand was the fastest since May 2020 amid a decline in new order inflows,” Markit said.
“Finally, output expectations picked up to the strongest since January 2020. A greater degree of confidence reportedly stemmed from new product development and hopes of an uptick in client demand,” Markit concluded.