The Russian manufacturing sector slowed again in October, driven by weaker client demand. Output and new orders both contracted but managers remain strongly optimistic about output over the coming 12 months.
The seasonally adjusted IHS Markit Russia Manufacturing Purchasing Managers’ Index posted 47.2 in October, up from 46.3 in September, but still below the 50 no-change market, the sixth successive decline in the health of the manufacturing sector. The pace of the overall contraction was the second-strongest since May 2009.
On the price front, inflationary pressures picked up slightly but remained historically muted. The Central Bank of Russia (CBR) put through a 50bp cut to overnight rates in October and expects inflation to end the year at circa 3.7%, below its target range of 4%.
Hesitancy among customers to place new orders led to a fifth successive fall in factory sales. Muted domestic demand was accompanied by a marked decline in new export orders, the sharpest decrease for over a decade. Panellists stated that the downturn was driven by challenging external demand conditions.
But despite lower sales, manufacturers remained strongly optimistic towards output over the coming 12 months, with the level of positive sentiment picking up from September. Confidence was commonly linked to new product developments and planned investment in new machinery.
Nonetheless, optimism did not translate into an increase in employment. Lower production requirements following a sustained fall in new business led to a third successive decrease in workforce numbers in October, as voluntary leavers were not replaced. Furthermore, firms reported a steep reduction in backlogs of work.
Finally, firms reduced their purchasing activity further as they supplemented production through the use of pre-production inventories. Stocks of finished goods also fell amid lower client demand and efforts to run down stores.