Yesterday saw the release of the PMI manufacturing survey, as well as a bunch of other early indicators on the supply side.
«On a positive note, business sentiment remained surprisingly resilient in the manufacturing sector, according to the PMI survey. The headline index remained above the 50 waterline for the fifth month running and, moreover, the rate of expansion picked up to a 13-month high (51.7) – admittedly still meagre from an historical perspective. The survey signalled a solid increase in new orders accelerating to the fastest rate over the last 13 months, and further expansion in output to the quickest since July. Export orders at the same time remained under pressure, suggesting it was domestic demand that was behind this resilience in output and new business. Import substitution must have helped to some extent, but we fear most of the reported pick-up in domestic demand was driven by the depreciation-fuelled rush for imported consumer goods ahead of anticipated price hikes. Naturally, this bout of demand acceleration represents nothing else but the bringing forward of future demand and hence, if anything, tilts the balance of the outlook to the downside. The first incoming hard data for November was less upbeat in this regards, with cargo handling volumes dipping back into the negative area and electricity consumption adjusted for weather conditions essentially stagnant. Overall, we continue to think that although import substitution and state-sponsored spending should help to dampen the impact of external shocks to some extent, they can hardly steer the economy away from recession, particularly in light of deleveraging pressures. In the meantime, cost pressures increased significantly to the highest since 1998 on the back of RUB depreciation. The impact of the weaker rouble is also feeding through to output prices, which is also reflected in the advance in consumer prices. The inflationary pressures are likely to accelerate further in the coming months before peaking in 1Q15. We expected headline CPI to peak at 9.5% YoY in February in our baseline scenario, assuming oil prices stabilise around USD 80/bbl, but now that Urals is flirting with USD 70/bbl and market expectations are still biased to the downside, greater than expected RUB weakness poses obvious upside risks, threatening to push headline CPI into the double-digit area at the start of next year».
VTB Capital analyst
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