Russian manufacturers registered a moderate improvement in operating conditions in April on the back of growing production and a strong increase in client demand, but activity slowed from March, which saw the storngest increase in manufacturing in the last two years.
The seasonally adjusted IHS Markit Russia Manufacturing Purchasing Managers’ Index (PMI) posted 51.8 in April, down from 52.8 in March, but above the 50 no-change mark.
February was a particularly strong month for Russia’s manufacturers. Industrial production surged by 4.1% but then dropped back to 1.2% in March. The manufacturing PMI was also mostly flat in February at 50.1 but then surged in March to 52.8. The services PMI remains a lot stronger at 54.4 in March.
All-in-all, while Russia’s manufacturing sector has returned to growth, it has failed to build up substantial momentum as economic growth in general remains weak and constrained by the lack of structural reforms.
It was the domestic markets that drove the upturn in sales in April, reports Markit, with new export orders unchanged from March.
Despite a further monthly rise in new orders, employment fell for the second time in four months. The marginal fall in employment was faster than the series trend and reportedly stemmed from redundancies and efficiency gains in production.
Meanwhile, inflationary pressures softened as the impact of January's hike in VAT continued to peter out. The increase in cost burdens was the slowest since March 2018. And backlogs of work fell for the twentieth successive month, while stocks of finished goods increased for the first time since last October.
Business confidence eased from March's recent peak, but was nonetheless the second-highest since May 2013. Russia’s business confidence has been mildly optimistic for four months in a row, according to the most recent Rosstat survey.
“The modest improvement in the health of the manufacturing sector was the second-strongest since last November and broadly in line with the series trend,” Markit said in a press release.
Manufacturers stated that the acquisition of new clients and new product development supported an upbeat outlook for output over the coming year. Expectations were robust and the degree of confidence was the second-strongest since May 2013, despite easing from March.
Siân Jones, economist at IHS Markit, which compiles the Russia Manufacturing PMI survey, commented: "Russian manufacturers signalled a moderation in overall growth in April, following a spike in output and new orders in March. A fall in employment, coupled with softer production and new business expansions contributed to the lower headline PMI reading. Meanwhile, cost inflation eased from January's VAT-driven record, but firms were still able to raise charges at a solid pace. Panellists remained robustly optimistic of a rise in output over the coming 12 months, despite forecasts of a slowdown in manufacturing growth through 2019. IHS Markit currently expects industrial production to rise 2.0% in 2019, down from 2.9% in 2018 and largely driven by oil and gas output."
This article is from bne IntelliNews Russia monthly country report. Sign up to receive the report to your inbox each month, which covers the slow moving macro- and micro-economic trends, the major political news and a round of the main sectors and corporate news. First month is free and you can unsubscribe at anytime.
See a sample here
Sign up for a one-month trial here
Question? Ask bne IntelliNews’s Stephen Vanson