Modest Improvement in Russian Manufacturing Business Conditions in August
Business conditions facing Russian manufacturers improved only modestly in August.
Alexander Morozov, Chief Economist (Russia and CIS) at HSBC, said: “Unfortunately, our cautious perception of the robust HSBC Russia Manufacturing PMI print in July proved to be justified: the August PMI survey signalled the sector’s return to a slow growth trend. Admittedly, the Output Index remained robust, exceeding its average since 2010. Apparently, June’s precautionary de-stocking has helped manufacturers to maintain output growth later in the summer.”
The latest HSBC PMI data compiled by Markit showed only a marginal increase in incoming new work, and little change in manufacturing employment. Output growth was maintained at July’s solid pace, but was supported
mainly through the completion of backlogs.
The HSBC Purchasing Managers’ Index (PMI) remained in positive territory for the eleventh month running in August, signalling an overall improvement in business conditions in the Russian goods-producing sector. But the Index fell from 52.0 to 51.0, signalling a more muted performance than in July.
The downward movement in the PMI mainly reflected a weaker contribution from the new orders component. Growth of new business was maintained for the eleventh month running, but the rate of expansion slowed to a marginal pace. This partly reflected a fall in new export orders, the first since February.
Goods production in Russia increased in August. Growth has been registered every month since August 2009, and the increase in the latest period was slightly stronger than the average over that sequence. That said, it remained weaker than the long-run survey trend.
With new orders rising only marginally in August, manufacturers supported output mainly through the clearance of backlogs. The volume of outstanding work in the sector has fallen every month since October 2009.
Russian manufacturers barely raised headcounts during the latest survey period. Staffing in the sector rose at a fractional pace, following no change during the previous month.
Purchasing activity rose in August. The rate of growth moderated, however, and was weak in the context of
historic survey data. Pre-production stocks declined at the fastest rate in a year.
Input price inflation strengthened for the second month running in August, linked by survey respondents to
higher costs for utilities and fuel. The rate of inflation was the sharpest since October 2011, but remained
well below the long-run survey average.
Pricing power in the manufacturing sector remained muted in August, reflecting lacklustre business conditions. Output prices rose for the sixth month running, but at a weak rate.
Morozov continued: “Yet, forward-looking indicators such as the New Orders Index and the New Export Orders Index saw a major setback in August. The latter Index pointed to a marked contraction of foreign demand following a five-month period of expansion. Importantly, the consumer goods sector underperformed the
two other sectors in August, signalling weakening consumption growth momentum. This is negative news since private consumption has been key to economic growth in Russia recently.
“Besides, companies must have faced a stronger profit squeeze in August, being unable to increase their output prices despite a faster rise in costs. If so, this would limit their resources for investment into production expansion.
“We conclude from the survey results that output growth in Russian manufacturing will likely moderate and become subdued in the coming months. Yet, the low base of 3Q 2011 should allow industrial production growth to stay above 3% y-oy in 3Q 2012.”