Russian Manufacturing Improves More Than Forecast on Ruble Gains

Russia’s manufacturers fared better in April than forecast by economists as a decline in new orders was balanced out by growing output and a deceleration in input price inflation to a 15-month low.

The Purchasing Managers’ Index increased to 48.9 from 48.1 in March, according to a report released by HSBC Holdings Plc and Markit Economics on Tuesday. The median estimate of six analysts in a Bloomberg survey was for 48.3. The gauge held below the 50 mark that divides expansion from contraction for a fifth month.

The world’s largest energy exporter is caught in the crosscurrents of an economy slipping into its first recession since 2009 and the ruble staging this year’s biggest currency rally. Manufacturers are adjusting by cutting jobs for a 22nd straight month and emptying stocks, according to the report.

“April’s survey offered a bit of a mixed-bag in terms of underlying Russian manufacturing performance,” Paul Smith, a senior economist at Markit, said in the statement. “The rapid deceleration in price inflation coupled with a strengthening of the ruble offers hope that the manufacturing sector is getting back to a firmer footing following a difficult start to the year.”

The ruble, which lost almost half of its value against the dollar in 2014, is the best performer among more than 170 currencies tracked by Bloomberg this year with an 18 percent gain. The ruble strengthened 0.5 percent to 51.4360 versus the dollar as of 2:32 p.m. in Moscow.

Ukraine, Oil

While sanctions imposed over the conflict in Ukraine continue to weigh on the economy, a rebound in oil prices helped reverse the ruble’s declines and contributed to more upbeat projections by officials including President Vladimir Putin. The Economy Ministry last month forecast a 2.8 percent decline in gross domestic product this year, compared with 3 percent of contraction it estimated earlier.

The Bank of Russia has taken advantage of the ruble rally and slowing inflation to cut interest rates three times this year. Having ended Russia’s worst currency crisis in 16 years, policy makers accelerated rate cuts last week as their focus shifts to the economy.

GDP will shrink 4 percent this year after expanding 0.6 percent in 2014, according to economists surveyed by Bloomberg. Inflation accelerated to 16.9 percent from a year earlier in March, compared with 16.7 percent in February.

Price indexes fell “sharply to signal much slower inflation,” according to the HSBC report. Total new orders dropped at the sharpest pace in almost six years, mainly due to “a sharp fall” in capital-goods production, HSBC and Markit said.

The decline in new orders “undoubtedly puts a dampener on any positivity and suggests full recovery is unfortunately still a little way off,” Smith said.