Russia: Challenging economic environment weighs on Russia's business conditions
September 3, 2015
A sharp drop in the Russian ruble is the main cause for concern for Russian firms in the manufacturing and services sectors. The manufacturing Purchasing Manager’s Index (PMI) elaborated by Markit fell from 48.3 in July to 47.9 in August, marking a three-month low. As a result, the indicator fell further below the 50-threshold that separates expansion from contraction in business activity in the manufacturing sector. Markit pointed out that August’s result reflected the worsening economic conditions that Russian manufacturing firms are facing, particularly due to the recent depreciation of the Russian ruble, which prompted a sharp increase in average input prices. Moreover, the majority of respondents to the survey were more pessimistic regarding overall manufacturing output, lower demand and a decrease in incoming new business. New export orders also declined, extending the period of contraction to two years. Firms also recognized that reacting to a strong increase in manufacturing input prices in August, Russian manufacturers also raised their own output prices. Finally, the August survey showed that additional job cuts were recorded in August.
Simultaneously, the Purchasing Managers’ Index (PMI) in the services sector took a hit in August, falling from 51.6 in July to 49.1. Consequently, the indicator moved below the 50-threshold that indicates that business activity in Russia’s services sector entered into contraction mode. According to Markit, the fall in August was due to a general lack of incoming new business amid evidence of a more challenging economic situation. The challenging economic environment dented service-sector business confidence in August. According to Markit, “although business expectations remained in positive territory, the degree of positive sentiment was the lowest recorded since March.”
Author: Ricardo Aceves, Senior Economist