Russia: Economic conditions deteriorate as manufacturing PMI drops to 11-month low and services sector contracts
July 3, 2019
The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit slid from 49.8 in May to 48.6 in June, marking the third consecutive month of deterioration and the lowest reading since July 2018. As a result, the index moved further below the critical 50-point mark, signaling that activity in the manufacturing sector contracted for the second month running.
June’s reading reflected a downturn in new business activity which dropped for the first time in 10 months amid sliding real purchasing power of Russian consumers and weak external demand. This, in turn, led to falling output, which dipped for the first time in nine months. Softening client demand also prompted a faster depletion in backlogs of work and brought about another drop in employment after firms had already shed jobs at the fastest pace in over two years in May. Lastly, on the price front, input costs continued increasing in June, although the rate of inflation moderated to a near two-year low. Firms passed higher input charges on to consumer through higher output prices.
Meanwhile, the IHS Markit Russia Services Business Activity Index fell to 49.7 in June, down from 52.0 in May. As such, the index slid into negative territory, marking the first contraction in business activity across the Russian service sector in over three years. New business fell in June, against the backdrop of dire consumer demand conditions which also had a knock-on effect on output growth and employment levels.
Commenting on the report, Sian Jones, an economist at IHS Markit, highlighted deteriorating sentiment in June:
"In line with their manufacturing counterparts, service sector firms signalled lower output expectations, highlighting concerns around client purchasing power and generally weaker demand conditions. At the composite level, private sector firms registered a decline in output and new orders, with manufacturers recording an even faster fall in output than service providers. Meanwhile, rates of input price and output cost inflation softened further from January's spike, as slower increases in raw material costs and greater pressure to discount charges became apparent."
Author: Almanas Stanapedis, Economist