Manufacturing PMI decreased to 51.0 in June, from a 14-month high of 53.2 in May 2012, the sector’s lowest performance in 2Q12. The detailed breakdown reveals that there was a change for the worse in all major components. New orders edged down from 54.9 to 52.1, export orders declined from 52.0 to 51.4 and employment decreased from an exceptionally high 52.2 in May to 49.6 in June. At the same time, the rates for input and output price inflation were mixed: while output prices increased marginally to 51.5 (from 51.4 in the previous month), the pace of growth in input prices kept on its downward trend, decreasing to 52.3 from 55.4.
The latest manufacturing PMI reading indicates that Russia has not escaped the global economic slowdown: European problems influence the Russian economy. Also, much tighter domestic monetary and fiscal conditions, as well as the budget running an approximately 0.5% of GDP surplus, likely contributed to growth slowing down. One negative print, which dragged PMI down, was the drop in employment, which is in line with the official seasonally adjusted May data. Meanwhile, the unemployment rate is below the NAIRU level, which could prompt corporates to optimise labour costs by focusing on efficiency. Hence, the latest manufacturing PMI reading underpins our forecast of 3.5% YoY GDP growth in 2012.