Russia: Deterioration in manufacturing persists in April, while services continue to improve
May 6, 2016
Operating conditions in the manufacturing sector continued to worsen heading into the second quarter. In April, the Manufacturing Purchasing Managers’ Index (PMI) elaborated by Markit fell to 48.0 from 48.3 in March. As a result, the index fell to a low that was last registered in August 2015 and further below the 50-threshold, signaling that the downturn in the sector intensified.
In a statement, Markit pointed out that the intensifying downturn in the sector was the result of a sharp contraction in production—the fastest contraction since May 2009—and a substantial drop in new orders. Markit added that, due to the strong output contraction, finished-goods stock depleted for the 24th consecutive month. Regarding the drop in new incoming work, manufacturing businesses reported declines in both foreign and domestic demand, with domestic new orders declining at a more moderate pace. With output and new orders decreasing, manufacturing firms continued to cut jobs in April, but the intensity of job destructions was the weakest since November. Commenting on Russia’s Manufacturing PMI, Martkit stated that, “After the IMF recently downgraded their 2016 forecast for Russian GDP growth to minus 1.8% from minus 1.0%, latest PMI data for April brings further disappointing news to policymakers. The headline figure reinforced the predictions made by the IMF as it slipped to an eight-month low, pointing to more challenging business conditions for Russian manufacturers.”
A different story was told by Russian services providers, whose business activity continued to improve in April. Markit’s Services PMI climbed from 52.0 in March to 54.2 in April, which marked the highest level since March 2013 and moved further above 50 points, which indicates that the sector is expanding rapidly. Markit said that April’s notable improvement was the result of solid growth in new business intakes. That said, Russian services providers continued cutting jobs in April, and thecutback of staff was faster than the previous month. Moreover, services firms reported a further fall in backlogs of work in April, while a majority of respondents indicated less optimism toward future business activity. Commenting on the result in April, Markit said that, “April survey data again highlighted a diverging performance between Russia’s struggling goods producing sector and its recovering service sector. Business activity levels at service providers rose at the fastest pace in 37 months, contrasting vastly with the sharpest contraction in manufacturing output since May 2009.”
Author: Ricardo Aceves, Senior Economist