The Russian Manufacturing PMI index ticked up further, to 52.9 in October from 52.4 in September, on the back of the 20-month strong performance of both components: new orders (56.2 vs. 54.0 in the previous month) and output (55.3 vs. 53.9). At the same time, a detailed breakdown reveals that the export orders subindex again dived below the no-change mark to 49.6 in October from 50.4 the previous month. The employment component decreased to 50.3 from 51.8 in September, remaining near the 50 mark. The prices sub-indices slowed in October, with input prices edging down to 56.6 from 61.4 in the previous reported period, and output prices sliding to 54.2 vs. 54.8 a month ago.
We believe that October’s reading reflects a modest rebound in manufacturing sector growth, underpinned by a jump in internal demand growth, despite a decline in export orders and almost unchanged employment growth. Meanwhile, softer inflation pressures coincide with the recent weekly CPI reading, which indicated a notable deceleration in prices growth (likely to be a one-off, in our view). We believe that the recent improvement of local demand is unlikely to be sustainable, as cooling lending, a rising saving ratio and the ongoing income growth slowdown (real wage growth stood at 6.3% YoY in August-September vs. 10.5% YoY in 1H12) may drag down the consumption increase.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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