Russia: Business activity in Russian manufacturers edges closer to stability, in services it contracts further
February 3, 2016
Business activity in Russia’s manufacturing sector remained in contractionary territory for the most of 2015, and although it showed signs of improvement at the outset of the year, survey data for the first month of 2016 were disappointing. The Markit’s Manufacturing Purchasing Managers’ Index (PMI) rose from 48.7 in December to 49.8 in January and came in above the 47.5 the markets had expected. Despite the improvement, the indicator remains firmly entrenched below the 50-threshold that separates expansion from contraction.
According to the survey, the mild improvement in January reflected marginal increases in manufacturing output and volumes of new orders. Nonetheless, jobs destruction continued to be evident. Moreover, firms reported that input prices continued to increase at a fast rate in January, with firms transferring the cost increase to their output prices. Markit commented that, “the headline PMI for January was fractionally below the crucial 50.0 no-change mark, signaling that the Russian manufacturing sector is edging closer to stability at the beginning of 2016.” Analysts at Markit concluded that, “All-in-all, there are still some slightly more encouraging signs to extract from underneath January’s headline figure. However, for the time being, the sector still remains in a sluggish state.”
Meanwhile, Russian service providers registered yet another sharp drop in January. The Markit’s Services PMI fell from 47.8 in December to 47.1 in January, which marked the lowest level in 10 months. Russian services providers began 2016 on a negative note due to a massive contraction in new business levels, which prompted a deterioration in backlogs of work. Inaddition, job shedding persisted in January, as firms turned more pessimistic regarding their outlook for activity. Meanwhile, services also continued to experience a fast increase in input prices. Markit commented that the January survey, “provided further signs of a slowdown in the service sector of Russia. Business activity lowered for another month amid a solid contraction in incoming new business. Also, with fewer new projects in the pipeline, firms continued to shed jobs at a substantial pace.”
Author: Ricardo Aceves, Senior Economist