Russia: Russian manufacturing sector remains in contraction mode, while services return to growth
March 4, 2016
Business activity in Russia’s manufacturing sector remained in contractionary territory for the most of 2015 and in the first two months of 2016. The Markit’s Manufacturing Purchasing Managers’ Index (PMI) edged down from 49.8 in January to 49.3 in February and fell short of the 49.5 that markets had expected. The indicator remains firmly entrenched below the 50-threshold that separates expansion from contraction.
The February survey showed that production levels among Russian manufacturers remained broadly unchanged compared to the previous month. However, firms reported a sharp decrease in backlogs, which prompted managers to cut jobs further. Meanwhile, an increase in new work came on the back higher domestic demand, while export orders continued to decrease. The rate of contraction in export orders was the highest in 19 months. Moreover, purchasing activity among Russian manufacturers decreased in February, following a mild increase in January. Finally, Russian goods producers reported a further increase in output prices, due to an increase in input prices. Markit commented that, “Disappointingly for goods producers, scrutinizing the survey data leaves little encouraging news. Workforce numbers continued to slide while outstanding business was depleted at a sharp pace. Although there was a slight expansion in new orders, albeit underwhelming, export orders contracted at the quickest rate in 19 months, highlighting the difficulty facing Russian goods exporters at present.”
Meanwhile, Russian services providers registered a notable improvement in activity in February. The Markit’s Services PMI jumped from January’s 47.1 to 50.9 and thus returned to expansion mode. The reading marked the first month with increase in business activity in the sector since September 2015. According to Markit, “Russian service providers reported a slight increase in their business activity levels during February, driven by an expansion in new orders.” Nonetheless, the increase in new orders could not prevent a deterioration in outstanding business and a further drop in employment. In addition, services firms continued to report higher price pressures in February.
Author: Ricardo Aceves, Senior Economist