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Russian Manufacturing PMI further slowed in May


Russian Manufacturing PMI for May slid a notch to 50.4, from 50.6 in April. The new orders sub-index kept declining, to 52.4, the lowest since August last year, despite slightly stronger new exports orders. The output index edged down to 50.4 from 51.4 a month ago. Inflationary pressure indicators modestly intensified in April: cost pressure inched up to 53.9 vs. 53.8, while output prices went to 50.6 vs. 49.3, but remained well below the long-term average.

The employment component edged up to 48.9, from 48.5 in May; however, this has remained below the 50 mark over the recent seven months.

The headline number suggests that the manufacturing sector is losing momentum and gradually approaching stagnation, reflecting lower growth in local demand (both investment and consumer).

Deteriorating demand has continued weighing on output in the manufacturing sector: the respective sub-indices decreased to their lowest levels since July 2009.

Further, employment has been harmed by softer demand: the relevant PMI Manufacturing sub-index has been contracting for seven months.

Cost pressure somewhat bounced, but remained subdued. Nevertheless, we reiterate that sluggish economic conditions are likely to contain inflation pressures in the months to come.

In such an environment of further deterioration on the supply side, we believe that monetary stimulus would be highly suitable. Therefore, from a monetary policy point of view, the recent PMI reading revealed additional support for a rate cut in June.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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