Russian Manufacturing Fell in December Amid Resumed Drop in Oil

  • Decline ends two months of expansion after 10-month drop
  • Falling oil prices, weak demand point to `challenging' 2016

Russia’s manufacturing industry contracted in December, halting a two-month recovery as falling oil prices threaten to extend the country’s recession into a second year.

The Purchasing Managers’ Index fell to 48.7 in December, a reversal from the positive 50.2 and 50.1 readings in October and November, according to a statement released by Markit Economics on Wednesday. The median estimate of six analysts in a Bloomberg survey was 49.5, below the threshold of 50 that separates contraction from growth.

The economy of the world’s biggest energy exporter is contracting for the first time in six years amid the drop in oil prices and U.S. and European sanctions over Russia’s role in the Ukrainian conflict. A renewed sell-off in oil after the Organization of Petroleum Exporting Countries effectively abandoned output limits earlier this month is threatening to extend the recession into the longest in two decades, and is challenging President Vladimir Putin, who said this month that Russia had passed the worst of the crisis.

“For what in the most part has been a difficult 2015 for goods producers, recent months have appeared to signal a shift in the sector to a higher gear,” Samuel Agass, an economist at Markit, said in the statement. “However, the latest survey figures suggest manufacturers may endure a challenging start to 2016 unless some action can be taken to stimulate demand for goods.”

Russia’s economy shrank 0.3 percent in November on a seasonally adjusted basis, the first contraction in five months after gains of 0.1 percent in October and 0.3 percent in September, the Economy Ministry reported on Tuesday. Gross domestic product fell 4 percent last month from a year earlier. The ministry projects a contraction of 3.9 percent this year.

A resume in the decline in oil prices has increased pressure on the ruble, threatening to fuel inflation. Price pressures persisted in the manufacturing sector, as both input and output costs rose, according to the Markit statement. The rate of inflation was solid in both instances, with the increase in costs tied to higher raw material prices, it said.

The ruble has fallen almost 20 percent against the dollar this year, while inflation eased to 15 percent in November after reaching a 13-year high of 16.9 percent in March. The ruble fell 1.2 percent at 11:39 a.m. in Moscow to 73.06 against the dollar.

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