Russia's manufacturing PMI drops in July for third month in a row

Russia's manufacturing PMI drops in July for third month in a row
Russia's manufacturing PMI drops in July for third month in a row / bne IntelliNews
By bne IntelliNews August 1, 2018

Russian manufacturing PMI contracted for the third month in a row, according to the IHS Markit Russia Manufacturing PMI report of July 1. The reporting month saw a second successive monthly decrease in new orders and the first output level decline since April 2016.

Russian industrial output and manufacturing in particular were recently beefed up by Rosstat's retroactive series revision, but PMI indexes for May and June already showed that the speed of recovery remains in question. Recent reports also suggested that the government is bracing for a slowdown in 2018-2019.

The PMI index registered 48.1 in July, down from 49.5 in June, and below the 50.0 no-change mark. "The latest PMI reading indicated a weak start to the second half of the year and the strongest deterioration in operating conditions since April 2016," Markit commented.

"Not a great July Russia manufacturing PMI, to say the least," BCS Global Markets commented on August 1, adding that "the headline reading fell even more to a truly recessionary 48.1 from an already worrying 49.5 in June." 

The decline in production was linked to weaker client demand both at home and abroad, as well as a fall in new orders. In July new export orders declined for the first time in 2018.

The rate of job shedding also accelerated in July, with manufacturers reporting a solid decrease in workforce numbers, according to Markit. While business confidence remained strong, it eased to a seven-month low in July, with firms raising concerns over lower client demand.

BSC warns that PMI data is particularly alarming due to completely missing the consensus expectations for the second month in a row, which can lead to a shift in investor sentiment toward Russia.

The underperforming industrial numbers may mean that "the words manufacturing recession in Russia will be in the air soon, further downgrades of Russian economic estimates are guaranteed, and Russia now looks as having weakest economic momentum among major EMs, i.e. an opportunity for macro hedgies to start shorting," BCS suggests.

Data

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