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Russia Early Indicators – March; no signs of economic thaw this spring

Yesterday, we published our regular Russia Early Indicators report, in which we summarised the results of the PMIs and the first statistics for March. We provide some extracts from the report below.

A bunch of early economic statistics for the first spring month looks worrisome, flagging rising recession risks in the coming quarters. As if the bleak outlook for domestic demand and uncertainty-related blow to business and consumer confidence was not enough, the warm weather likely put additional weight on economic activity in March.

Both headline PMIs revealed contraction. During 1Q14, the drop in business activity across manufacturing industries remained rather stable with the respective PMI fluctuating in a narrow range near post-crisis lows. Sector-wise, consumer-oriented industries seem to be in a relatively better shape than those focused on capital goods. In the meanwhile, services industries that struggled to grow in January-February eventually printed a decline – the headline index aggressively dwindled and dipped below the 50-mark in March (47.7) for the first time since July 2013.

Synchronised fall in domestic and export demand. Adding to the pressure on the supply-side from meagre local demand was a pronounced fall in export orders in March. Thus, the respective manufacturing sub-index dropped to 45.0 – the lowest level since August 2009. Meanwhile, local car sales in March improved on the back of the favourable base effect but nevertheless remained in the negative area (-8.4% vs. -18.5% in 2mo14).

IP to dip back below the waterline. The almost 6.0°C YoY increase in temperature last month seems to be behind the sharp declines in gas (according to CDU-TEK -6.0%) and electricity output (-4.7%, given aggregated daily data). As far as the manufacturing sector is concerned, the pull-back in weather-adjusted electricity consumption and the continued decline in rail cargo handling (-0.4% YoY) suggest it has likely fallen back into the red.

Vladimir Kolychev, Darya Isakova
VTB Capital analyst


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