The headline seasonally adjusted IHS Markit Russia Manufacturing PMI put in its strongest growth since April 2019 after registering 51.5 in February, up from 50.9 in January, signalling a marginal improvement in the health of the Russian manufacturing sector in the last month.

“February PMI data signalled a second successive monthly improvement in operating conditions across the Russian manufacturing sector. The overall upturn was supported by quicker expansion in output and new orders amid stronger client demand. Exports, however, continued to fall due to challenging external demand conditions. The headline figure was buoyed by the greatest rise in employment for over two years. Business confidence also strengthened in February and was back to levels last seen before the coronavirus disease 2019 (COVID-19) pandemic,” Markit said in a note.

Russia is emerging from an annus horribilis after its economy was less damaged than others by the multiple shocks it received in 2020. GDP contraction was limited to 3.9%, in defiance of predictions of as much as a 6% fall earlier in the year.

However, growth is not anticipated to return until the second quarter of this year and businesses, while a lot more confident, as still facing difficulties.

Supply chain pressure worsened markedly in February according to Markit’s panel, and resulted in a higher rate of input cost inflation. Firms were able to partially pass on higher input prices to clients through the fastest increase in charges for six years.

One of the more unpleasant consequences of the coronacrisis has been a resurgence in inflation, which climbed to 5.2% in January, well above the CBR’s 4% target rate. CBR Governor Elvira Nabiullina attended the policy meeting in January wearing a “full stop” broach – she has taken to wearing broaches at her press conferences that indicate the CBR policy – and the full stop broach clearly said there will be no more growth-inducing rate cuts for the meantime.

But after a year of being locked up at home, businesses are starting to go back to work. Russia has the benefit of high infection rates and started its mass roll-out of vaccinations in December, so is well ahead of the rest of the world on the path to a return to normality.

“Contributing to the overall expansion was a faster rise in production at goods producers midway through the first quarter. The solid upturn was the steepest since last August and widely linked to stronger demand conditions,” Markit said.

“At the same time, new order inflows picked up, and rose at the fastest pace since August 2020. Alongside greater customer demand, panellists stated that new client acquisitions helped to drive up sales. In contrast to the trend for total new orders, new export business fell once again in February,” Markit added.

Also contributing to a higher headline PMI figure was a marked deterioration in vendor performance, and one that was the greatest since May 2020. Longer lead times for inputs were commonly attributed to transportation delays and supplier shortages.

As a result of capacity pressure at suppliers, cost burdens increased substantially in February, also contributing to rising inflation.

“The rate of input price inflation was among the steepest since February 2015. That said, manufacturing firms were able to pass on some of their higher costs to clients through a marked rise in charges. The pace of output price inflation accelerated to the sharpest in six years,” said Markit.

In line with greater lead times, manufacturers utilised their inventories in an effort to supplement production. Stocks of purchases and finished goods dwindled further, with the former falling at the quickest rate for three months.

Input buying increased for the first time since August 2020, however, as firms sought to meet greater production requirements.

Meanwhile, the rate of job creation quickened and was the fastest since December 2018. Although backlogs of work continued to fall, the rate of contraction was the slowest since last September, reports Markit.

Finally, business confidence among Russian manufacturing firms remained upbeat in February. The level of positive sentiment improved to its strongest since January 2020, in a result that is borne out by Rosstat’s business confidence survey.