Russian industrial recovery continued in May; PMI at 52.0

The May survey of Russian purchasing managers from VTB Capital showed a further overall improvement in manufacturing sector business conditions, but the pace of expansion remained subdued. Growth of both new orders and output were little-changed from April, although manufacturers added to payrolls at the fastest rate since February 2007. The survey also highlighted growing inflationary pressures, with input and output prices both continuing to rise sharply.

The headline figure from the survey is the seasonally adjusted Russian Manufacturing Purchasing Managers’ Index, a composite indicator designed to track overall business conditions. Any figure greater than 50.0 signals improvement. The PMI posted 52.0 in May, fractionally down from April’s twenty-three month high of 52.1. The PMI was positively influenced by rising new orders, output and employment, and lengthening suppliers’ delivery times. The latest reading was below that seen on average prior to the downturn.

The Russian Manufacturing PMI is derived from a monthly survey of 300 purchasing executives in Russian manufacturing companies which has been conducted since September 1997. Readings above 50.0 signal an increase on the previous month while readings below 50.0 signal a contraction.

The primary driver of overall expansion in the Russian manufacturing sector in May was a further rise in new workloads. New orders increased at the fastest rate since January, although the trend rate of growth since last July has been weak. New export orders rose at a broadly similar rate to total incoming new business in the latest period.

Growth of Russian manufacturing output was maintained for the 10th month running in May. The rate of expansion remained solid, but slightly weaker than the survey’s long-run trend.

Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “Russian Manufacturing PMI remained in the above-50 growth zone for the fifth month in a row in May. At 52.0, the headline index pointed to almost the same pace of economic expansion as in March, when the index stood at 52.1. The key sub-indices reflected robust growth in output and new orders. According to the survey, employment in the manufacturing sector increased for the second month in a row. On a less positive note, price pressures continued to build up. Costs rose on higher utilities, energy and metals prices. Output prices climbed as well, as companies were able to pass higher input prices on to consumers due to stronger demand.”