Russia manufacturing PMI slips back 2.4 points to 49.6

The latest survey findings from VTB Capital signaled that overall Russian manufacturing business conditions deteriorated in October. Although output, new orders and input purchases all continued to grow, the rates of expansion slowed compared to one month previously. Moreover, manufacturers shed jobs at a faster pace than in September. Inflationary pressure on firms’ costs was maintained at a rate just below the long-run survey trend, while charges for manufactured goods rose at only a modest rate.

The headline seasonally adjusted Russian Manufacturing Purchasing Managers’ Index (PMI) fell from 52.0 in September to 49.6 in October, signaling an overall deterioration in the business climate at the start of the fourth quarter. It was the first month-on-month fall in the headline index since it plummeted to a record low (33.8) in December 2008, although the latest figure was indicative of only a marginal rate of decline. Breaking down the headline figure showed weaker positive effects from output, new orders and suppliers’ delivery times, and stronger negative influences from employment and stocks of purchases.

The Russian Manufacturing PMI is derived from a monthly survey of 300 purchasing executives in Russian manufacturing companies which has been conducted since September 1997. Readings above 50.0 signal an increase on the previous month while readings below 50.0 signal a contraction.

Underlying demand for Russian manufactured goods increased in October, as the volume of new orders rose for the fourth straight month. However, the rate of expansion eased to the slowest in that sequence. Export markets remained a source of weakness, as the volume of new work from foreign clients fell for the 13th successive month.

A muted increase in new work led to a slower rate of output growth in October. Following the fastest growth for 16 months in September, the pace of expansion eased markedly in the latest period. Also reflecting the weaker rise in new work, the volume of outstanding work declined, albeit only slightly.

Manufacturers raised their levels of purchasing activity in October, as was the case in September. However, the rate of expansion was only modest, and a further sharp fall in input stocks was recorded.

Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “Russian Manufacturing PMI declined to 49.6 in October, slipping under the 50 no-change level after an impressive performance in September that was most likely affected by one-offs in several sub-sectors. Despite a significant easing in numbers, both output and new orders sub-indices managed to stay above the 50 mark, with the headline number further negatively affected by acceleration in job shedding and inventory depletion. The new export orders index posted a notable decline to 47.8 in October, to a certain extent reflecting the recent RUB appreciation. Input price index continued to point to strong rise in costs associated with metals, energy and oil-related items while output prices index pointed to a moderating growth in price charged.”