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Manufacturing PMI ticked up slightly in June


Russian Manufacturing PMI for June ticked up to 51.7 (from 50.4 in May). The output sub-index advanced to 52.4 (from 50.4), while the new orders sub-index increased to 53.7 (from 52.4).

Meanwhile, the export orders sub-index improved modestly to 50.4 (from 50.2 a month ago), staying near the 50 mark. The employment component edged up to 50.3, exceeding the 50-mark for the first time since October 2010. The inflation sub-indices strengthened in June: costs growth accelerated to 55.1 (from 53.9), reaching a sixmonth maximum, and supported the growth in output prices, which increased to 52.0 (from 50.6 a month ago).

The Manufacturing PMI reflects a light rebound in sector growth (as compared with the spring months) and showed the first rise in the headline reading this year. Most of the sub-indices point to faster growth, but we consider June’s acceleration to be fragile and do not think it will prove a sustainable upwards trend in the coming quarters without prompt economic stimuli.

Faster growth in local and external demand has supported output in the manufacturing sector: the respective sub-indices increased to at least four-month highs.

Further, employment has also been underpinned by stronger growth in demand: the relevant PMI Manufacturing sub-index returned above the 50-mark (meaning an expansion of the workforce) after seven months of contraction.

Cost pressures bounced on the back of a rebound in metal prices and recent RUB weakness, but remained subdued (near long-term average levels). Nevertheless, we reiterate our view that sluggish economic conditions are likely to contain inflation pressures and that the beneficial base effect in food prices will push headline CPI growth to below 7.0% as early as in June.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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