Russia’s manufacturing PMI treads water in January, but producers are optimistic

Russia’s manufacturing PMI treads water in January, but producers are optimistic
Russia’s seasonally adjusted IHS Markit Russia Manufacturing PMI treading water in January at 50.9, only just above the 50 no-change mark and down from 51.7 in December
By bne IntelliNews February 1, 2019

Russia’s seasonally adjusted IHS Markit Russia Manufacturing Purchasing Managers’ Index showed industry was treading water in January at 50.9, only just above the 50 no-change mark, Markit reported on February 1.

Manufacturing slowed from December’s 51.7 and was lacklustre all year. Industry has been growing but thanks to the poor economic environment and low growth it has been unable to gather any momentum. The service sector on the other hand has been flourishing and is holding the Russian composite index up.

“The manufacturing PMI indicates only a marginal improvement in operating conditions across the Russian goods-producing sector. The headline figure eased for the second successive month and was the lowest since last September,” Markit said.

The headline figure dipped below the series trend as output and new orders increased at weaker rates. Weighing further on the overall performance of the sector was a contraction in employment, the first monthly fall in staffing numbers since August 2018.

“Nevertheless, the rise in new business was solid overall and survey respondents remained strongly optimistic towards the outlook for output over the coming year,” Markit added.

The recent hike in VAT led to accelerated rates of both input cost and output charge inflation, with the latter quickening to the fastest since September 2015 as firms sought to partly pass on higher costs.

On a sunnier note, Markit says that demand is good and manufacturers remain optimistic about the future.

“Greater client demand and the introduction of new products to the markets were often linked by survey respondents to the latest rise in new orders. The strength of the upturn was solid overall and one of the strongest in the last year despite easing to a three-month low. New export orders, however, fell for the first time since July 2018 in January,” Markit reports.

In line with a slower rise in production, firms reduced their workforce numbers in January for the first time since last August. The fall was only modest but helped to alleviate pressure on capacity, which was further highlighted by a decline in backlogs of work.

Manufacturers registered destocking of both inputs and finished goods in January. Firms also registered the first decrease in input buying since last September.

Finally, business confidence towards the year ahead was historically marked in January. Panellists suggested optimism stemmed from new product development and investment in modern technology.

Siân Jones, economist at IHS Markit, which compiles the Russia Manufacturing PMI survey, commented: "The Russian manufacturing sector shifted down a gear in January, with goods producers posting only a marginal overall improvement in the sector. A softer rise in production weighed on the sector's performance. Heavy on panellists' minds was the recently introduced hike in VAT. Subsequent quicker rises in input costs and output charges were highlighted, as firms sought to pass on higher operational costs. A number of manufacturers, however, noted that the fall in employment was also linked to efficiency gains."