Russian Manufacturing PMI slipped to a YTD low of 50.8 (vs. 52.0 for the previous two previous months), on the back of weak external and internal demand. The detailed breakdown reveals that the new orders and the new export orders subindices declined to 53.3 and 49.5, respectively, their lowest since December 2012. The output index eased to 51.3 (from 52.9 in the previous month), sliding below the long-term
average. In the meantime, the employment sub-index
dipped deeper below the ‘no-change
’ line, with a decrease to 49.1 (from 49.4 in February).
The input and output prices sub-index strengthened to 53.2 and 51.4 in March, from a multi-month low of 52.4 and 49.8 in the previous month, respectively.
The March reading shows that activity in the manufacturing sector weakened to its lowest level this year and to the second lowest in the last 12 months, reflecting softer local and foreign demand as well as coinciding with the overall downward trend in supply. Meanwhile, we prefer to treat the accelerated growth in costs in March mainly as a bounce back from the especially low level in February, but not as a reversal in the trend. We still believe that fragile economic conditions are likely to contain inflation pressures in the coming months.
From a monetary policy point of view, therefore, the reading revealed additional support for a rate cut. In this regard, we are maintaining our out-of-consensus forecast that the CBR easing cycle will be launched at today’s CBR policy meeting.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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