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Russian Manufacturing PMI points further growth moderation


The Russian Manufacturing PMI for April slid to 50.6 from 50.8 in March. The new orders sub-index kept declining, to 52.7, the lowest since August last year, which can be partly explained by weaker new exports orders. The output index edged up to 51.4 from 51.3 in March, but stayed well below the long-term average. Inflationary pressure indicators were mixed in April: on the one hand, cost pressure slightly intensified (the respective index was up to 53.8 vs. 53.2), but on the other, the recent PMI reading reflects a deflation in output prices (49.3 vs. 51.4).

The employment component eased to 48.5, from 49.1 in a month ago, and has remained below the 50 mark over a half a year.

The headline number suggests that the manufacturing sector is losing momentum and gradually coming closer to stagnation (note that IP growth had already stopped in 1Q13) and reflects lower growth in total new work intakes.

Weaker overall demand (both local and external) has continued weighing on employment in the manufacturing sector: the respective sub-index has been persistently contracting during the last six months. Note that as only 15% of all employment in Russia is in manufacturing, total unemployment has disregarded this trend so far; however, we also expect the current labour market tightness in other sectors to disappear, bringing the unemployment rate higher and opening the way for bolder monetary easing.

Cost pressure somewhat bounced, particularly on the back of a weaker rouble, but remained subdued. This, coupled with deflation in output prices, implies greater pressure on manufacturing company margins. We reiterate that fragile economic conditions are likely to contain inflation pressures in months to come.

In such an environment of further deterioration on the supply side, we believe that monetary stimulus is badly needed. Therefore, from a monetary policy point of view, the recent PMI reading revealed additional support for a rate cut in May. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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