Russia: While activity in manufacturing rises for the first time in 11 months, Russian services continue to struggle
November 2, 2015
The Russian manufacturing sector began the last quarter of the year on the right footing. The Markit’s Manufacturing Purchasing Managers’ Index (PMI) jumped from 49.1 in September to 50.2 in October, which contrasted the drop to 49.0 that markets had expected. October’s PMI crossed the 50-threshold that distinguishes expansion from contraction for the first time since November 2014.
Markit stated that operating conditions in the manufacturing sector continued to improve in October, which mainly reflected an increase in manufacturing output and new orders as well as a decrease in backlogs. Both readings resulted from stronger demand in the domestic market, while exports continued to decline. Meanwhile, October’s survey showed that employment continued to deteriorate, but the reduction in workforce numbers was the slowest in seven months. Finally, respondents to the survey signaled that output prices continued to increase in October, which came on the heels of an increase in input prices.
Commenting on October’s result, Markit added that, “the headline PMI finally broke the through the 50.0 no-change barrier in October and thereby making an important step in the ongoing recovery of the manufacturing sector following the turbulence seen earlier in the year.”
However, Russian services providers cannot tell the same history. According to the Markit’s Services PMI, the sector returned to contraction mode at the start of Q4, “as new work stagnated and excess capacity persisted.” The indicator fell from 51.3 in September to 47.8 in October and thus slipped below the 50-threshold that separates growth from decrease in services activity. According to Markit, the indicator has hovered below 50 in three instances in the last five months and October’s print marked the lowest level since March. The drop in October reflected a decline in all services sectors, with the exception of communications. The disappointing performance across the sector stemmed from a challenging economic environment, which had an impact on sales and the creation of new businesses.
Author: Ricardo Aceves, Senior Economist