Russia: Private sector conditions improve in August; An upturn in Services PMI sector more than offsets another contraction in manufacturing sector
September 4, 2019
The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit edged down to 49.1 in August from 49.3 in July. As a result, the index moved further below the critical 50-point mark, signaling that activity in the manufacturing sector contracted for the fourth consecutive month.
August’s deterioration was chiefly driven by faltering new orders, which shrank at the fastest pace in over four years as external demand continued to weaken. The sustained decline in new business prompted Russian manufacturers to once again reduce output levels and cut workforce numbers. On top of that, backlogs of work fell sharply in August. On a more positive note, confidence towards future output growth improved in the surveyed month, despite the deterioration in overall operating conditions. With regards to prices, inflationary pressures remained generally muted in August, although currency weakness led to higher prices for imported raw materials.
Meanwhile, the IHS Markit Russia Services Business Activity Index rose to 52.1 in August, from 50.4 in July. As a result, the index moved further above the critical 50-point mark, signaling an improvement in business activity across the Russian service sector. The improvement was chiefly driven by a stronger increase in new business compared to July, amid an uptick in new export orders.
Commenting on the report, Sian Jones, an economist at IHS Markit, noted that accelerating services sector activity propped up overall private sector growth in August:
“At the composite level, data indicated a renewed upturn in new business, despite difficulties in the manufacturing sector. That said, overall output growth was only weak by historical standards and well below the rates of expansion seen at the start of 2019. In line with muted rates of inflation and a relatively modest expansion across the private sector, the Central Bank of Russia may choose to once again cut interest rates in September in an effort to boost consumer demand.”
Author: Almanas Stanapedis, Economist