Manufacturing in Russia returns to deceleration in September
Russian manufacturing returned to the red zone in September after an encouraging rebound in the previous month, when it showed the first improvement since April. Companies are blaming the reduced number of new orders and raw material shortages.
Russia’s Manufacturing Purchasing Managers Index (PMI) went back into the red on coronavirus second wave fears in September, reports bneIntelliNews. According to the latest IHS Markit PMI survey, a fall in new orders due to weak client demand caused a deterioration in operating conditions across the Russian goods-producing sector at the end of the third quarter. As a result, Russia Manufacturing PMI fell from 51,1 in August to 48,9 in September, which is below the 50 no-change mark.
However, the decline in the manufacturing sector was much slower compared to figures registered at the peak of the COVID-19 pandemic earlier this year, when the index crashed to unprecedented lows. The Russian economy, which has been recovering well over the summer, is considered to be in better shape than during the other two major crises in 1998 and 2008. Nonetheless, a recent resurgence of coronavirus infection rates is meant to hinder the recovery.
In September, the overall PMI decline was fuelled by a renewed fall in new orders reportedly caused by muted client demand and cancelled projects. Despite the fall, manufacturing output continued to rise at a solid rate, as firms resumed operations. At the same time, the situation in the job market got worse amid lower new order inflows. In August, unemployment grew to 6,4%, which is still low by historical standards. New export sales also decreased, and the pace of decline rose significantly since August. The manufacturing sector also registered a marginal decrease in backlogs of work.
Cost burdens also saw an essential increase. Although the rate of input price inflation slightly moderated compared to August, it was still among the fastest in two years. Raw material shortages and supplier price hikes pushed up costs, so companies partially passed on greater costs to clients through an increase in charges. Output price inflation was the fastest in four months.
Shortfalls in raw material and logistics delays caused further deterioration in vendor performance across the Russian manufacturing sector. Businesses curtailed their inventories and purchasing activity amid softening demand conditions and subsequent efforts to cut costs, says bneIntelliNews.
Overall, companies remained optimistic about the prospects of a rise in output over the next 12 months hoping for an end of the pandemic and new product development. However, the degree of confidence was the weakest in four months and below the series average amid lower new order inflows.