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Russia: Manufacturing and Services PMIs suggest faster contraction in January

February 4, 2015

The manufacturing Purchasing Managers’ Index (PMI) elaborated by HSBC fell from 48.9 in December to 47.6 in January, which marked a second consecutive month below the 50-threshold that separates expansion from contraction in business activity in the sector. According to HSBC, the reading indicated “the sharpest deterioration in overall business conditions in the Russian manufacturing sector since June 2009.”

January’s result reflected that new orders fell for a second consecutive and the pace of decline was faster than in the previous month. In addition, new exports and new business fell over the previous month, reflecting weak growth in both external and internal demand. Consequently, manufacturing production deteriorated in January. On price developments, the increase in input prices accelerated in January, reaching the highest level since 1998. According to HSBC, manufacturers attributed the increase to the sharp weakening of the ruble. Due to worsening conditions in the manufacturing sector, respondents to the January survey indicated that they had cut staff, sending the employment sub-indicator to its lowest level since July 2009. HSBC concluded that, “signs of contracting business activity became more visible, the January HSBC Russia Manufacturing survey revealed. Yet the path of output contraction is slow”, while adding that, “price pressures intensified further, increasing the probability of a ‘bad equilibrium’: high price growth amidst falling demand. This is a signal to monetary authorities to be cautious with their rate policy and refrain from moving policy easing forward.”

Simultaneously, the services PMI fell from 45.8 in December to 43.9 in January, which remained below the 50-threshold for the fourth consecutive month. According to HSBC, the reading signaled a further deterioration in business conditions in the Russian services sector. January’s drop reflected a fall in new business and a decline in new contracts, mainly due to the sharp ruble weakening, high interest rates and a slowdown in overall economic activity. In addition, HSBC noted that input prices rose sharply in January as firms linked higher cost pressures to the weakening currency. Consequently, output prices shot up, reaching the highest level since January 2003.

FocusEconomics Consensus Forecast panelists see fixed investment contracting 2.9% in 2015, which is down 0.7 percentage points from the previous month’s estimate. For 2016, the panel expects fixed investment to increase 2.0%.


Author:, Senior Economist

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Russia PMI January 2015

Note: Markit HSBC Purchasing Managers’ Index (PMI). A reading above 50 indicates an expansion in business activity while a value below 50 points to a contraction.
Source: Markit and HSBC.


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