Russia manufacturing growth remained sluggish in March

Russia’s manufacturing sector continued to experience sluggish growth in March, according to the latest survey of purchasing managers from VTB Capital. Growth of production was maintained for the eighth month running, but at a rate below the long-run average for the series. A slight decline in new orders compared to February undermined the recovery in the sector, while firms continued to shed staff on average. The survey also signaled that inflationary pressures remained weak compared to the historic trend for the survey.

The headline figure from the survey is the seasonally adjusted Russian Manufacturing Purchasing Managers’ Index, a composite indicator designed to track overall business conditions. Any figure greater than 50.0 signals improvement. At 50.2 in March, unchanged from February, the PMI signaled a marginal improvement in the business climate. The PMI remained below its long-run trend level of 52.1 in the latest period although, on a quarterly average, the first-quarter figure (50.4) was the highest since Q2 2008.

The five components of the PMI exerted mixed influences in March. A fall in new orders was offset by a slightly sharper rise in output, as well as a weaker decline in employment and a more substantial lengthening of suppliers’ delivery times.

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.

Output and demand
Following two months of modest growth, the volume of new orders received by Russian manufacturers fell slightly in March. The latest decline was the third since last November, as market demand remained fragile. In particular, new export business registered a sharp fall, partly reflecting the recent strengthening of the rouble. Overall, new export contracts declined at the steepest rate since August 2009.

Despite the latest fall in new business, manufacturing production rose overall for the eighth successive month. The rate of growth was the strongest since September 2009, but still weak compared to the long-run survey average. Growth partly reflected the completion of existing contracts, as backlogs of work declined at the fastest rate in three months.

Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “March’s Manufacturing PMI stayed unchanged from February at 50.2, pointing to a third consecutive month of a marginal rise in economic activity in the sector. The headline number was supported by improvements in the output index (from 52.0 to 52.5) and, encouragingly, the second slowest decline in employment in 20 months (the index rose to 48.7, from 47.1). On the downside, the number of new orders declined (the index slid to 49.5, from 51.7). Output prices eased to a four-month low; the input price index has also moderated slightly but continued to point to a sharp rate of inflation fuelled by metals and energy prices as well as transportation charges.”