Russian Manufacturing Slump Unexpectedly Worsens as Demand Slips

Russian manufacturing unexpectedly deteriorated in July, extending its slump to eight months in a sign that the economy got off to a stumbling start this quarter.

The Purchasing Managers’ Index fell to 48.3 from 48.7 in June, remaining below the 50 threshold that separates contraction from growth, according to a report released Monday by Markit Economics. The median estimate of five economists in a Bloomberg survey was for an increase to 48.8.

“The Russian manufacturing sector continues to broadly stagnate,” Paul Smith, senior economist at Markit, said in the statement. “The prevailing softness in output reflects underwhelming demand for manufactured goods, which continues to lead to idle resources and associated job cuts.”

Russia will struggle to shake off its first recession in six years if a crisis in consumption spills over to manufacturing following the ruble’s collapse and a decline in oil prices. Companies may have to operate without the benefit of more relief from the central bank, which dropped its pledge to continue easing following this year’s fifth interest-rate cut on Friday.

The ruble, which lost almost half of its value in 2014, has weakened 17 percent against the dollar in the past three months and traded 1.5 percent weaker at 62.6390 to the dollar at 11:33 a.m. in Moscow. Its three-month implied volatility is at 19 percent, the highest globally, according to data compiled by Bloomberg. The Micex Manufacturing Index slipped 0.6 percent to 1,398.01.

Underlining the challenges for the central bank, July’s manufacturing survey showed inflation reaching the fastest in three months and highlighted “a marked and accelerated increase in average prices paid for inputs,” Markit said.

Manufacturing output shrank for a third straight month amid a fall in inventories and new business from abroad. Companies reduced employment for a 25th month in July, according to Markit.

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