HSBC survey data suggested that growth of Russian manufacturing production and new orders slowed further in November. Meanwhile, input prices rose at the fastest rate since April 2008, and employment growth all but ceased.
The HSBC Russia Manufacturing Purchasing Managers’ Index, a composite index designed to track overall business conditions and formed of five components – new orders, output, employment, suppliers’ delivery times and stocks of purchases, remained above the no-change mark of 50.0 in November. However, at 51.1, from 51.8 in October, the latest figure was the weakest since March, and remained below the long-run trend level of 52.1.
Growth of new orders was maintained in November, but at a weaker rate. The pace of expansion was the slowest in the current eight-month sequence of growth. New export orders registered outright contraction for the fifth successive month.
Slower gains in new business led to a further softening in output growth. The current run of expansion now stretches to sixteen months, but the latest pace of growth was the weakest since March.
Backlogs of work declined at the fastest rate since those registered in the months following the financial crisis of late-2008. Outstanding business has fallen continuously since October 2009, highlighting the relatively subdued increases in new work received compared to the rates seen prior to the downturn.
The continued loss of momentum in the manufacturing sector in November was reflected in a near-halt to employment growth. Headcounts were broadly unchanged from October, following modest growth in the previous month.
Input price inflation accelerated sharply, as average input costs rose at the fastest rate since April 2008. Inflationary pressure was driven by higher prices for cotton and grain – linked to the poor harvest – as well as oil-based products and metals.
In response to rising input prices, Russian manufacturers hiked their tariffs in November. The rate of output price inflation accelerated slightly to the fastest since July 2008, and the current sequence of rising charges now stretches to seventeen months.
Commenting on the Russia Manufacturing PMI survey, Alexander Morozov, chief economist (Russia and CIS) at HSBC, said: “Manufacturing output growth lost momentum for the sixth consecutive month in November, according to the latest HSBC Russia Manufacturing PMI results. New order growth was weaker than output growth, suggesting a high likelihood that output growth will continue to moderate in the very short-term. The good news was the marked improvement of New Export Orders Index, which points to a likely forthcoming stabilization of export demand.
Despite weaker demand growth, companies reported problems on the supply side such as limited rail freight capacity and shortages of raw materials. This should be one of the key reasons for the sharp rise in cost pressures to pre-crisis boom levels in November. The pass-through effect of rising costs to output prices has also intensified to the pre-crisis level. Based on the results of the HSBC PMI survey, we expect a further output growth moderation in manufacturing, combined with high inflationary pressures and elevated output prices growth.”