According to the PMI survey for February, the pace of the drop across Russian manufacturing industries remained near a post-crisis low, with the headline index little changed from that seen in January (48.5 vs. 48.0 a month ago).
The output sub-index registered a slight upturn to 49.1 (vs. 48.5), staying underwater mainly on a slump across investment-related industries. The rate of decline in new orders, both local and export, accelerated with the according sub-indices decreasing to 48.6, the lowest since May 2009, and 47.7.
Meanwhile, the employment sub-index edged up slightly to 48.9, still recovering from a deep low hit in December 2013.
A weaker RUB has finally translated into cost inflation, as the respective sub-index approached an 18-month high. Even though the cost pass-through is still limited, final prices also started to crawl up.
Looking beyond the highly volatile monthly data, Russian manufacturers kept phasing production down in response to the persistent weakness in new orders flows. Of more concern, the orders-to-stock ratio, which we treat as a leading indicator, dropped further to 0.97 (vs. the average of 1.12 during the post-crisis period), implying downside risks to the short-term outlook for industrial production.
Amid such a poor situation, it is surprising that the pace of job cuts has moderated. Nevertheless, we believe that the labour market is unlikely to recover soon in light of the strong pressure on companies’ margins.
That said, given recent RUB turbulence, cost pressure is set to grow spurring retail prices up as well, eating into consumer spending.
In a nutshell, we do not expect any growth rebound in the quarters to come, and if anything see greater recession risks at the moment (vs. our current 1.25% forecast that is still below-consensus growth).