Russia Says Recession Over as Manufacturing Unexpectedly Jumps

Updated on
  • Ministry said seasonally adjusted GDP grew 0.1% last quarter
  • Markit PMI index rose to 52.4, the highest reading since 2012

Russia exited a recession last quarter, the Economy Ministry said, as a gauge tracking the nation’s manufacturing industry unexpectedly rose to a four-year high in October.

Seasonally adjusted growth in gross domestic product reached 0.1 percent in the third quarter from the previous three months, the ministry’s press office said by e-mail on Tuesday. That ends a period of decline that the state development lender Vnesheconombank estimates lasted for eight quarters. A technical recession is commonly defined as at least two consecutive quarters of contraction.

“The economy has turned the corner,” Ravi Bhatia, director for sovereign ratings at S&P Global Ratings, said at a conference in Moscow on Tuesday. “We expect the return to positive real GDP growth in 2017-2019. And this, hopefully, will be the last year of economic contraction.”

The world’s biggest energy exporter is righting itself from the longest slump under President Vladimir Putin. Adding to signs that growth is finally within reach, the Manufacturing Purchasing Managers’ Index rose to the highest since October 2012, exceeding all forecasts in a Bloomberg survey of six economists.

Rising production among manufacturers and domestic orders outweighed a continued decline in new business from abroad. The manufacturing gauge rose to 52.4, a third consecutive month of expansion, from 51.1 in September, according to a statement released by Markit Economics on Tuesday.

‘Solid Improvement’

“The latest figure was indicative of a solid improvement in operating conditions and a clear sign that the sector may finally be making a sustainable recovery,” Samuel Agass, an economist at Markit, said in the statement. “Encouragingly, production growth looks likely to sustain its current solid pace, as backlogs accumulated at the sharpest rate since August 2006.”

While higher oil prices has propped up the ruble and buoyed a recovery in consumption and investment, the central bank still estimates growth was close to zero last quarter on a seasonally adjusted basis. A “slight” quarterly growth is expected in the last three months of the year, policy makers said in a statement on Friday, when they kept the key interest rate unchanged at 10 percent.

The improving sentiment in Russia is playing out in the market, with the ruble gaining more than 16 percent against the dollar in 2016, the world’s second-best performance after Brazil’s real.

Backlogs among manufacturers accumulated at the fastest pace since August 2006, according to Markit. New export orders continued to decline, while industry cut jobs for a fourth month even as investment goods’ companies increased hiring, the report showed.

“The main negative highlighted by this month’s data is the current trend of job cutting,” Agass said. “That said, with signs of capacity pressures in the sector intensifying, workforce numbers should return to growth territory in the near future.”

— With assistance by Zoya Shilova

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