Russian manufacturing output, new orders rose at faster rates in December

HSBC survey data signaled that Russian manufacturers ended 2010 on a positive note, as output and new business both increased at their strongest rates since August. The seasonally adjusted HSBC Russia Manufacturing Purchasing Managers Index (PMI), a composite index designed to track overall business conditions, posted its largest one-month gain since September 2009 in the final month of 2010, rising from 51.1 to 53.5 in December. The latest figure signaled the strongest overall improvement in operating conditions since March 2008, and was greater than the PMI’s long-run average of 52.1.

New orders received by Russian manufacturers increased at the strongest rate since August. A number of firms reported successful marketing policies during the month, and new product development. The volume of new work received from export markets increased for the first time in six months, and at the fastest rate since March 2008.

Manufacturing output in Russia increased for the 17th successive month in December. Moreover, the rate of expansion picked up to its highest since August, reflecting stronger gains in new orders. The volume of outstanding business continued to decline, but at the weakest rate in eight months.

December data revealed signs of capacity investment by Russian manufacturers, as stronger new order growth improved the short-term outlook for workloads. Employment in the sector rose for the seventh time in nine months, and at the fastest rate since July 2006. Meanwhile, purchasing activity by manufacturers rose at the strongest pace in four months. This contributed to pressure on suppliers and, as a result, the average time taken to deliver inputs to manufacturers in December remained among the longest indicated by the survey to date.

Average input prices increased at the fastest rate since April 2008 in December, reflecting higher demand and supply constraints. Raw materials, particularly metals and oil-based products, were highlighted as having contributed to inflationary pressure during the month. Further sharp increases in input prices led firms to hike their prices for final goods, and the rate of output price inflation was broadly similar to November’s 28-month high.

Commenting on the Russia Manufacturing PMI survey, Alexander Morozov, chief economist (Russia and CIS) at HSBC, said: “Manufacturers positively surprised in December, reporting improvements on all but one of the five key indicators. Significant improvement in new orders, including new export orders, is particularly encouraging. In brief, in December the manufacturing sector faced stronger external and domestic demand and responded to it by increasing output and quantity of input purchases and decreasing inventories and backlogs of works. At the same time, rail freight capacity constraints led to longer suppliers’ delivery times that may start restraining further business development. Stronger demand has boosted cost pressures to the second-highest level of the past 11 years and sustained high growth of output prices, despite still observed spare production capacity in some industries.

“As opposed to the historically high price environment, output growth in manufacturing remains weaker than the pre-crisis trend. Yet, we think that the recent jump in world energy prices has potential to further boost growth in the Russian manufacturing in the very short-term. In the longer-term, sustaining faster manufacturing growth would require sustaining global energy price growth.”