Manufacturing PMI remained at 49.4 in September, similar to August’s level. The new orders sub-index printed the second lowest level over the two recent years, at 50.4, while export orders sank below the 50-mark (to 48.7) for the first time since April 2013. The employment sub-index edged up a notch to 46.2, staying near the lowest level of the past four years that was hit in August. Meanwhile, output prices remained unchanged at 52.2, as well as input prices at 56.4.
September’s report suggests that the underlying momentum in the manufacturing sector remained meagre amid bleak demand.
It was also noticeable that manufacturers kept cutting their workforce numbers for the tenth time in eleven months and in September the pace of this reduction remained close to August’s four-year low (46.2 vs. 46.1). This coincides with our forecast of a further deterioration on the labour market.
That said, the recent PMI reading reflects that cost inflation pressures in September stayed slightly above the 12-month average (56.4 vs. 55.2) on the back of higher prices of imported goods and energy costs. The pass-through to final prices remains almost non-existent, nevertheless, as suggested by the rather subdued output price sub-indices (52.2). Hence, given the slowdown in domestic demand, companies have so far been reluctant to pass rising cost pressure on to final customers.
All in all, the recent PMI report once again highlights that the manufacturing sector is on a downward stage in the economic cycle, and we believe the CBR needs to intensify its accommodative measures in order to prevent any further cyclical weakness of internal demand.
Daria Isakova, Vladimir Kolychev
VTB Capital analyst
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