Russia: Manufacturing downturn worsens in March, while services continue to improve
April 5, 2016
Russia’s manufacturing sector remained in contractionary territory for the most of the first quarter of 2016. The Manufacturing Purchasing Managers’ Index (PMI) elaborated by Markit fell from 49.3 in February to 48.3 in March, signaling that the downturn in the sector intensified as the index fell further below the 50-threshold that separates expansion from contraction.
According Markit, March’s drop continued reflected a decrease in both new orders and manufacturing production. In addition, Russian manufacturers reported further cuts in employment and that their volumes of outstanding business deteriorated. March’s survey signaled that the contraction in output in March reflected a decline in incoming new orders and a shortage of available inputs. New order from abroad also declined in March. With output decreasing, manufacturing businesses registered a decline in inventories. Moreover, purchasing activity fell further in March due high input prices. Markit commented that, “Russian manufacturers are currently in the midst of a worsening downturn, according to March PMI data. The headline figure fell further below the all important 50.0 no-change mark, dipping to a seven-month low. Demand conditions returned to a state of deterioration, as incoming new orders from both domestic and international markets contracted. This lack of consumption contributed to a fall in output. Inflationary pressures remained evident, although input costs and output prices rose at weaker rates.”
A different story was told by Russian services providers, whose business activity improved further in March due to an increase in new business and a slowdown in job shedding. The Markit’s Services PMI jumped from 50.9 in February to 52.0 in March, which marked the highest level in 10 months and remained above 50 points, which indicates that the sector is expanding. According to Markit, the increase in new work is solely the result of strong demand and Russian services providers continued cutting jobs in March, although the rate of decrease was the slowest since August 2015. Moreover, output prices set by services firms continued to rise in March, but the pace of average increases was modest compared to the previous month. Markit said that, “Russian service providers enjoyed one of their strongest months in recent times, as the headline figure rose to a 10-month high during March. The expansion in business activity ended a mixed first quarter.”
Author: Ricardo Aceves, Senior Economist