March Purchasing Managers’ Index data from VTB Capital signaled that the contraction of the Russian manufacturing sector stabilized at a rate weaker than those registered at the end of 2008 and at the start of 2009. The headline seasonally adjusted Russian Manufacturing PMI rose for the third straight month to 42.0, its highest level in five months.
However, the PMI has now signaled contraction for eight successive months, a longer sequence than that registered during the 1998 financial crisis. Moreover, the average PMI reading for the current period of decline (42.0) indicates a sharper downturn than that seen a decade earlier (where the PMI averaged 46.3).
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.
Output, demand and capacity
The rate of decline in new orders to Russian manufacturers in March was the weakest for five months. That said, the downturn remained sharp by the survey’s historical standards, as almost one in three companies reported lower new workloads compared to February. New export orders continued to decline sharply although, in line with the pattern of total new business, the rate of contraction was the slowest since last October.
Production and purchases of inputs also fell at their slowest rates since last October. Reduced output was primarily reflective of a lack of incoming new work, and the current six-month sequence equals the record set between May and October 1998. Purchases have fallen continuously since last August.
Stocks of unsold goods declined at the fastest rate since December 2005 in the latest period, following rapid cuts in output in recent months. This destocking, combined with a slower fall in new business, suggests that the moderation in the rate of decline in production may continue at the start of the second quarter.
Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “March’s Manufacturing PMI rose for a third consecutive month from 40.6 to 42.0, yet the outcome points to the eighth successive month of contraction, longer than that recorded during the 1998 financial crisis. Input prices continued to surge in March thanks to a weak rouble and rising energy costs, forcing companies to ramp up output prices for the first time in five months, although the rate of charge inflation was relatively modest due to weak demand and strong competition. On a more positive note, the stocks of unsold goods declined which, combined with a sluggish contraction of new business sub-index, both suggest that the headline index may keep rising into the second quarter, albeit with no sharp recovery expected.”