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Manufacturing PMI


Manufacturing PMI progressed to an 8-month high of 51.8 in October from 49.4 in September. The new orders sub-index sharply upturned to 54.7, exceeding the 12-month average, notwithstanding export orders sank further below the 50-mark to a new multi-year low. Amidst stronger demand, the output sub-index improved to 54.9, this year’s high. The employment sub-index also edged higher to 48.6, but stayed below the 50-mark for 12 months in a row with one exception. Otherwise, inflation sub-indices indicated the lowest pace of prices growth since May 2013, with output prices at 51.1 and input prices at 54.0.

In line with the broad-based improvement across the Asia region, Russian manufacturing PMI rebounded in October. Component-wise, the improvement comes on the back of sharp upturns in both output and new orders to multi-month highs. The pick-up in production and new orders was mostly concentrated in the investment goods sector, which might be related to a seasonal increase in budget-funded investments, and hence is likely to be temporary. On a less encouraging note, export orders continued to contract, with the corresponding sub-index sliding to multi-year lows. Moreover, manufacturers continued to cut back on the workforce in an attempt to increase productivity. Inflation pressure subsided further both at the input and output levels.

Overall, the improvement in the manufacturing sector might allay fears of an uncontrolled economic slowdown and provides another excuse (apart from high food inflation and growing but near all-time low unemployment) for the CBR to remain on hold for a while. That said, it looks as though this economic rebound is likely to be temporary and growth momentum is unlikely to sustain once the impact from temporary factors (base effect in agriculture, state investments, the Olympics) fades away.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

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