Business conditions in Russia’s manufacturing sector showed tentative signs of recovery at the start of 2010, according to January survey findings from VTB Capital. Output rose for the sixth straight month, and at a faster rate as new orders increased for the first time since last October. Employment continued to fall, but at a much slower rate than the trend pace recorded over late-2008 and 2009. Inflationary pressures strengthened, but remained relatively weak.
The headline seasonally adjusted Russian Manufacturing Purchasing Managers’ Index posted above the no-change mark of 50.0 for only the second time in the past 18 months in January, indicating an overall improvement in operating conditions in the sector. The latest PMI reading reflected stronger positive contributions from the output, new orders and suppliers’ delivery times indices, and less negative effects from the employment and stocks of purchases components. That said, the latest reading of 50.8 signaled only a marginal overall improvement in conditions, and was below the long-run trend of 52.1.
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
New business growth resumed in January, following a two-month period of decline. The rate of expansion was the second-steepest since May 2008, but weaker than the pre-crisis trend. Data showed that new export orders rose only marginally, suggesting that the domestic market was a key driver of demand growth.
Rising new business supported production growth in January. Output has increased every month since last August, although the expansion slowed to a negligible pace during the final two months of 2009. The rate of growth strengthened in January but remained below the survey’s historic average. Although production rose at a stronger pace in January, increased sales led to a fall in finished goods stocks.
Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “January’s Manufacturing PMI rose to 50.8, the second reading pointing to an expansion across the sector over the past 18 months. The headline number was supported by new orders crossing the no-change 50 level to reach 53.0, while new export orders also rose (50.8). The output index rose to 52.3, pointing to production rising for six straight months and supporting the recent upturn in official statistics. In addition, at 48.2 the employment index improved for the fourth month running with further stabilization expected on the job market. The input price index rose to 61.4 amid higher commodity prices and freight charges while the output price index rose to 54.0 as companies tried to pass rising costs on to customers.”