Autumn began with muted colours. Although the ‘cash-for-clunkers’ programme and the better performance of coal, chemicals and metals industries (as seen in their rail cargo volumes) might have lent some support to the economy in September, stalled electricity consumption coupled with a 15% plunge in gas output as well as erosion in manufacturers’ sentiment paint an opposing picture. On top of this, inflation has continued to creep up, reflecting not only the ban on food imports but also the weaker rouble, thereby impeding the private spending outlook.
PMIs gravitate to no-change mark. Since June, economic activity has stood at a standstill with insignificant fluctuations around zero, according to survey-based PMIs. Interestingly, SA capacity utilisation in mining and manufacturing has stuck to a downward trend and approached 1H11 levels, signalling a widening negative output gap.
Business sentiment worsening. Manufacturers do not anticipate a recovery anytime soon, given that their expectations have hit the lowest marks since early 2010, according to a Rosstat poll. Thus, lingering uncertainty related to geopolitics, oil prices and internal policy persuaded companies to optimise costs, creating cushions for external shocks and high local rates, and to postpone investments for the time being.
Relief in car sales unlikely to be sustainable. Last month, the decline in Lada sales returned into the single-digit area (-8.7% vs. -32.3% YoY in August), underpinned by the renewed ‘cash-for-clunkers’ initiative to encourage consumers to get rid of their older vehicles. Hence, consumer orders might register a healthier growth pace this autumn (in particular, the respective PMI sub-index for September signalled slightly faster order inflows in consumer-related industries), though it has little chance of translating into a sustainable trend reversal unless general income growth improves, we believe.
Electricity consumption vs. rail cargo volumes. Rail cargo transportation volumes added 0.2% YoY in September, returning to the black after a 7-month contraction, thanks to an advance in the growth of coal, chemicals and metals cargos. The latter, however, looks inconsistent with the persistent decline in export orders (sub-index PMI manufacturing) as well as the pause in electricity consumption growth. It is our thinking that general conditions in manufacturing remain tough, which is sweetened by support from import substitution and the build-up of pipes production. For now, we are comfortable with our zero full-year GDP growth forecast this year, suggesting that the risks are more or less balanced.
Upward inflation trend strengthens on weaker rouble. Both Services and Manufacturing PMIs kept pencilling stronger cost pressure in September, at least matching their 12-month averages. Respondents mentioned the exchange rate and labour costs among the major inflation drivers.