Operating conditions in the Russian manufacturing sector continued to improve in January. However, the latest survey data underpinned the relatively weak trend in growth seen during the final months of 2006, as production and new orders expanded at rates that were only marginally higher than the recent lows posted last December. Meanwhile, there were signs of upward pressure on both input and output price inflation.
The headline figure from the survey, the Russian Manufacturing Purchasing Managers’ Index – a composite indicator designed to give a single figure snapshot of operating conditions in the manufacturing sector – edged up from December’s 13-month low of 52.1 in January, to 52.3. However, the latest reading still pointed to the second-weakest monthly expansion of the manufacturing sector since November 2005. The main components of the headline index, output and new orders, increased at slightly faster rates during the month (though weaker than the long-run averages for the survey). There were encouraging signs from the latest employment data, however, as average staffing levels rose slightly, having declined in October and December of last year.
"The latest survey data for January 2007 suggests that the rate of expansion in the Russian manufacturing sector remains relatively subdued compared to its historical average,” said Dmitri Fedotkin, economist at VTB Bank Europe Research. “Nevertheless, the headline index rose marginally from the previous month on stronger output and new order sub-indices that were further supported by an expansion in employment conditions. At the same time, the positive components of index growth were offset by the relatively sharp acceleration in output and input prices, suggesting that last year's inflationary pattern is on course to repeat itself."
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.
Output and demand
Growth of Russian manufacturing production was consolidated a rate similar to those seen during the final two months of 2006 in January, and one that was below the average for the 9.5-year survey history. That output growth remained relatively subdued primarily reflected a rate of expansion in incoming new business which was little-changed from December, when new orders increased at the slowest pace since October 2005. In particular, new export orders were sluggish, registering almost no growth since the previous month.
Prices, supplier performance and employment
Although growth of production and new orders remained at relatively low levels in January, manufacturers increased staffing levels on average as they targeted the completion of existing workloads while taking on new contracts. However, the rate of expansion in employment was only marginal, suggesting firms continued to pursue productivity gains.
Input price inflation in the manufacturing sector accelerated to a three-month high in January, with energy bills and transport charges (especially for rail freight) commonly reported as being up in price from one month earlier. Average output prices also increased at a faster pace during the month.
January survey data signaled a lengthening of supplier lead-times in the Russian manufacturing sector. However, the rate of lengthening weakened since the previous month. Reports from panelists again highlighted problems associated with the Russian transport infrastructure as being a major factor behind the latest delays.
