Russian Manufacturing Business Conditions Remain Subdued
The Russian manufacturing sector remained on a weak growth trajectory in July, despite registering a slight improvement since the previous month.
The latest HSBC PMI data compiled by Markit showed faster increases in new orders and production, but growth rates remained slower than the long-run survey trends. The level of employment stabilised following June’s marginal fall, while inflationary pressures remained relatively weak.
New business rose in July, continuing the trend observed since October 2011. The rate of growth picked up since June and was greater than the average over the current sequence, but still weak when compared with before the financial crisis. New export orders rose for the fifth successive month – the longest sequence in over four years – but the pace of expansion was only marginal.
Higher new orders led to a further rise in manufacturing output in July. The current growth sequence now stretches to three years, and the rate of expansion strengthened on the month for the first time since April.
That said, output growth remained weak in the context of historic survey data. Production was again supported by the completion of outstanding business, as backlogs of work declined for the thirty-fourth successive month.
The lack of pressure on capacity was highlighted by a flat trend in manufacturing employment. The level of staff employed was unchanged from June, after having increased moderately in April and May.
Cost pressures facing Russian manufacturers strengthened from June’s 41-month low, in part reflecting higher energy prices. However, the rate of
input cost inflation remained much weaker than the long-run survey average. A similar pattern was evident for output prices, where the rate of inflation quickened slightly, but remained moderate overall.
Alexander Morozov, Chief Economist (Russia and CIS) at HSBC, said: “Some improvement of growth momentum in the Russian manufacturing sector in July is positive news, which contrasts to weak PMI readings for many other countries. Yet, the details of the HSBC Russia Manufacturing PMI survey show a mixed picture across different sectors. The consumer goods sector benefited from strong demand, increasing both output and employment.
“At the same time, the intermediate goods sector suffered from weaker domestic demand, reducing both output and payrolls. Lacklustre growth of new export orders failed to provide strong support to this sector.
“It follows from the survey that Russian manufacturing appears to be capable of sustaining low yet positive growth, with the reliance on primarily domestic sources. However, the likely moderation of private consumption growth on the back of faster inflation and lower oil prices could push manufacturing growth further down in the coming months. Manufacturers prepare for hard times in advance, and the fastest rate of inventory reduction since October 2009 signals that they are already adjusting output levels to a potential weakening of demand.”