Category Archives: Russian Manufacturing

1/2/16: Russian Manufacturing PMI January 2016: Stagnation Looms

Russian Manufacturing PMI rebound in January compared to December slump, rising from 48.7 in December (the lowest reading since August 2015, to 49.8. Still, January reading was nominally below 50.0, signalling second consecutive month of contraction in country manufacturing activity. In statistical significance terms, January reading is basically singling zero growth.

Per Markit, this means that “Russian manufacturing sector edgeed closer to stability during the first month of 2016” with “both output and incoming new orders return to growth territory”. However, overall, “survey data for the first month of 2016 remained disappointing for Russian manufacturers, as the sector stayed in contractionary territory. Although there were marginal increases in volumes of both production and incoming new orders, job shedding was still evident. Meanwhile, average cost burdens increased at a marked pace, while a more moderate rise in output charges was reported”.

On sectoral basis,”production volumes grew at Russian goods producers during January, having contracted in the final month of 2015. Anecdotal evidence suggested the expansion in output was linked to an increase in
incoming new orders. Job cuts were still evident in the manufacturing sector of Russia in January, continuing a trend that began in July 2013. The rate of job shedding accelerated to a four-month high and was solid overall.”

All of the expansion in new orders was contained within domestic economy, “as new export orders contracted. Falling new business from abroad has been reported in every month since September 2013.”

On a 3mo average basis, Manufacturing PMI for 3 months through January 2016 was 49.7 - below 50.0, although an improvement on 49.1 average for 3 months through October 2015, and on 49.4 3-mo average through January 2015. In simple terms, Russian Manufacturing continued to contract in 3 months through January 2016, but the rate of contraction was virtually indistinguishable from zero growth.

As shown above, Russia retained its's position as the second strongest performing economy by Manufacturing PMIs in the BRIC group.

4/1/16: Russian PMI in 4Q 2015: Signalling Continued Weaknesses

Having Russian PMIs for December 2015 allows us to take a look at the economy quarterly performance signals. As noted in the previous post ( with the decline in output reflected across both manufacturing production and services activity, Russian economy’s composite PMI averaged 49.1 in 4Q 2015 which is much worse than 50.4 average for 3Q 2015, suggesting that not only did the economy failed to attain stabilisation, but that growth might have turned more negative in 4Q 2015.

Let’s take a closer look at the quarterly averages by sector.

Russian Manufacturing PMI for 4Q 2015 stood at 49.7, which is a gain on 48.4 in 3Q 2015 and marks the strongest quarterly reading since 4Q 2014, but also marks the fourth consecutive quarter of sub-50 readings. The weaknesses in Manufacturing are especially troubling, as the sector is broadly targeted for imports substitution - a major policy shift by the Government since the start of 2015. Making matters worse, the sector should have benefited from strong ruble depreciation over the last 12 months, which - as it appears so far - did not lead to substantial increase in exporting activity. In part, this reflects weaknesses in global demand, but in part it reflects structural problems in Russian manufacturing that find goods supplied by the sector of generally non-competitive quality for global markets, even amidst improved price competitiveness.

Overall, we now have four consecutive quarters of sub-50 readings in Manufacturing sector - for the first time since 3Q 2008-1Q 2009 period.

Russian Services PMI for 4Q 2015 stood at 48.5, down sharply on 50.7 reading in 3Q 2015 and marking the weakest reading in the series since the start of 2Q 2015.Disappointingly, 4Q reading for Services sector broke two consecutive quarters of above 50 readings and done so sharply. Since the start of 1Q 2014, the sector has now posted sub-50 readings in 5 out of 8 quarters, and it managed to post statistically significant readings above 50 in only two quarters.

The above has meant that the composite activity index (distinct from Composite PMI) for Russian stood at 93.9 in 4Q 2015, which is an improvement on 90.3 in 3Q 2015, but marks fifth consecutive quarter of the overall production growth being negative (across combined services and manufacturing sectors). While 4Q composite indicator was the strongest in three quarters, it remains extremely weak (statistically significantly below zero growth marker of 100) and the third weakest of all quarters since the start of 3Q 2009.

On the net, therefore, while Russian economy posted some 4Q signals of growth consistent with less sharp contraction across combined Services and Manufacturing sectors, than in 2Q-3Q 2015, the deterioration in growth conditions in the economy in 4Q 2015 remained pronounced and this strongly suggests that we did not witness stabilisation of the Russian economy in 4Q 2015.

Stay tuned for analysis of BRIC PMIs next.

4/1/16: Russia Services & Manufacturing PMIs: December 2015

Russian PMIs are out for December 2015, so here is monthly data reading:

Russian Manufacturing PMIs posted a deterioration in sector performance in December, falling to 48.7 from 50.1 in November. This reverses two consecutive months of above 50 readings in October and November. It is worth noting that October-November readings were not statistically distinct from 50.0. On a quarterly basis, 4Q 2015 average reading was 49.7, which is better than 48.4 average for 3Q 2015, but still below 50.0 line. Overall December reading was the weakest since August 2015 and signals that the much anticipated stabilisation of the Russian economy did not take place in December.

Per Markit release: “Leading the deterioration in business conditions at Russian manufacturers was a fall in production. The rate of contraction quickened to the fastest since May 2009, with the majority of panellists linking this to a drop in new order intakes. As a result, a lower volume of post-production inventories was recorded. Meanwhile, Russian manufacturers continued to shed jobs during December. Falling employment has been reported in every survey period since July 2013, with the rate of contraction quickening to the sharpest in three months. The decline in staff numbers was matched by a solid deterioration in outstanding business volumes. Backlogs of work have been depleted in each of the past 34 survey periods. Elsewhere, incoming new orders slipped into decline in December, ending a three-month sequence of growth. However, the drop in new work was marginal and centred on intermediate goods producers. Data suggested that the main source of weakness was external, as export orders were down sharply.”

Chart to illustrate:

Russian Service PMI also reported a fall in output marking the third successive month of declines, driven by a slight decrease in new business levels. Job cuts continued in the sector as outstanding business deteriorated. The headline seasonally adjusted Russia Services Business Activity Index fell to 47.8 in December from already contractionary 49.8 in November. In 4Q 2015, average Services PMI reading was 48.5 against 50.7 in 3Q 2015, showing stronger deterioration in growth conditions in the sector in 4Q 2015. Current reading of 47.8 is the joint-weakest (with October 2015) for nine months.

Per Markit release: “New business levels at service providers slipped further into decline during December. However, the rate at which new work deteriorated was only marginal. Where a lower volume of new sales was recorded, panellists linked this to a combination of waning demand in the sector and payment difficulties being experienced by customers… With business activity at Russian service providers declining, pressures on operating capacity fell further in December. The rate at which work-inhand depleted eased to the slowest in three months yet remained solid overall. Anecdotal evidence suggested that lower backlogs of work were attributed to a drop in new business. Falling staff numbers have been reported in every month since March 2014, with the latest drop at a faster pace than in November. There was some evidence that lower employment reflected squeezed cash availability at service providers.”

Chart to illustrate:

Finally, Russia’s Composite index slipped into contraction during December, falling to 47.8, from 50.5 in November, with the decline in output reflected across both manufacturing production and services activity. Overall, Russian economy’s composite PMI averaged 49.1 in 4Q 2015 which is much worse than 50.4 average for 3Q 2015.

The data strongly suggests that not only did the economy failed to attain stabilisation, but that growth might have turned more negative in 4Q 2015.

I will be posting on quarterly figures for PMIs next, so stay tuned for more.

28/12/15: Russia: Unsurprisingly Surprising November GDP Print

Per latest report from the Economy Ministry, Russian GDP contracted 0.3% m/m in November in real terms and is down 3.7% y/y over 11 months through November 2015. Compared to 12 months ago, November GDP was down 4%.

This implies that, the economy will likely be down 3.8 percent (by my estimates: 3.8-3.9 percent) in 2015 as a whole. More significantly, with November GDP being down on foot of weaker oil prices and with crude prices continuing to contract through December, we are now less likely to see stabilisation in the economy (zero growth or return to positive growth) in 1Q 2016.

Meanwhile, in November, real wages were down 10% y/y while retail sales were down 13% for eleventh month in a row, according to Rosstat.

Rosstat data shows that over the last 12 months through November, food sales were down more than 11% and non-food goods sales fell nearly 15%. The figures for November 2015 show sharper contraction, in part because in November 2014 retail sales in Russia actually rose on foot of rapid devaluation of the Ruble. But overall, private consumption in Russia continues to run at a level consistent with where it was back in 2011. As noted recently by BOFIT, private consumption in Russia is still some 10 percent above where it was pre-crisis in 2008. Which is no mean feat, as for example, in the case of Ireland private consumption currently remains below its pre crisis levels despite the fact that Irish economy has been recovering very robustly from the crisis in recent years.

Rosstat data shows that seasonally adjusted industrial output fell again in November. Activity in extractive industries in November was unchanged from a year earlier, having supported the output to the upside in previous months. Manufacturing production, however, fell for the third month in a row, down ca 5% y/y in November. BOFIT noted that this suggests that “the impact of increased defence spending that supported manufacturing industries earlier this year is likely fading. First-half defence spending grew on-year by over a third, but since autumn defence spending has fallen.”

All of this supports negative view of the Russian economy going into 2016, summarised in my earlier post here:

The outrun so far has been quite disappointing for the forecasting hawks, including for example Danske Bank analysts who at the end of May 2015 predicted Russian economy will shrink 7.9% y/y in 2015 ( forecast they revised to -6.2% at the end of August 2015).

Or for that matter for seasoned hawks, like Andres Aslund who in January prediction put the matters thus: “Russia’s GDP is likely to plunge in 2015. Indeed, it would be prudent to expect a slump on the order of 10 percent. In many ways, Russia’s financial situation is eerily similar to the fall of 2008, when then-Prime Minister Vladimir Putin called his country a safe haven in the global financial crisis. In 2009, Russia’s GDP dropped by 7.8 percent. In other ways, the situation seems even worse.” (H/T to @27khv for the link:

But the outrun is also a bit on a reality check to some Russian political and Government figures (including President Putin and Prime Minister Medvedev) who bought into the fragile and dynamically uncertain improvements over Summer 2015 to announce the bottoming out of the economic crisis.

Truth is, Russian economy is a very hard nut to crack for any forecaster, as it is currently subject to a series of coincident shocks that themselves are hard to price and predict: oil prices and gas prices slump, contracting demand for energy globally, including on foot of both geopolitical changes and warm weather; broader commodities prices collapse, including on foot of global demand weaknesses and regional (e.g. China) weaknesses; geopolitical risks and sanctions (including financial sanctions); ongoing deleveraging of the Russian banking sector (including outside Russia, especially in Ukraine and the rest of the Former USSR and in parts of Central and Eastern Europe); domestic structural weaknesses (including those that started manifesting themselves in late 2011 and continue to play weak economic hand to-date); and so on. Thus, we shall be kind to forecasters and politicians making bets on Russian economy’s direction.

I wrote about most of the above already, including the banking sector woes ( And the trends in both manufacturing and services sectors were pretty clear in the PMIs (see

But translating these indicators into actual growth performance is a perilous task... as the November figures showed.

1/12/15: Russian Manufacturing PMI: November

Russian Manufacturing PMI released by Markit remained within near-zero growth territory, posting 50.1 in November, down on 50.2 in October. Overall, some positives and key negatives were:

  • Both output and new orders rose at fastest pace in 12 months; 
  • Growth conditions in manufacturing remain extremely sluggish; 
  • New export orders fell “at sharpest rate in seven months”;
  • Workforce continued to contract, as “employment levels have contracted in each of the past 29 survey periods”;
  • Most of uplift in production was signed to agricultural sector production rise (Russian grain crop posted second strongest performance at 117 mL tons through early November, after there record 2014 crop);
  • Majority of new orders increases took place in domestic markets

So overall, Russian Manufacturing showed repeated signs of weak stabilisation, but virtually no signs of recovery.