Russian Manufacturing Unexpectedly Contracts as Orders Decline

  • Markit PMI index fell to 49.5, the lowest reading since April
  • Industrial production helped power economy through recession

A gauge tracking Russia’s manufacturing industry unexpectedly returned to contraction in July while export orders fell, forcing companies to cut jobs in a sign the country’s industry faces an uneven recovery as recession persists.

The Purchasing Manager’s Index fell to 49.5 from a 19-month high of 51.5 in June, according to a statement released by Markit Economics on Monday. That was the worst showing since April and below every forecast in a Bloomberg survey of five economists, whose median estimate was 51. It slipped below the threshold of 50 that separates contraction from growth for the first time since May.

“Deteriorating demand conditions continued to weigh on the economic performance of Russian manufacturers,” Samuel Agass, an economist at Markit, said in the statement. “This contraction led to an easing of production growth and job cuts across the sector.”

A slowdown in manufacturing is the latest hurdle for the economy of the world’s biggest energy exporter as it struggles to shake off its longest recession in two decades. Three months of gains in industrial production helped offset the continuing distress among consumers in the second quarter, when gross domestic product lost 0.6 percent from a year earlier, the smallest drop since the contraction began at the start of 2015.

Lagging Behind

The Micex Manufacturing Index has risen 1.2 percent this year, underperforming the broader Micex Index, which is up more than 11 percent. The ruble is the second-worst performer among its emerging-market peers in the past month with a 3.3 percent loss against the dollar.

Pre-production inventories fell at the sharpest clip in 11 months and input purchases retreated among Russian manufacturers for the first time since April, according to Markit. While new export orders dropped, the industry increased production for a third month and outstanding business accumulated for first time since January 2013, it said. Price pressures intensified, the report showed.

“Backlogs of work accumulating for the first time since January 2013 suggests capacity pressures are finally building,” Agass said. “But with input stocks declining and buying activity falling, firms appear to be taking a cautious approach at present.” 

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