Things are getting uglier in Russia’s manufacturing sector.
Russia’s HSBC composite output index fell to 47.6 in January, down from 48.9 in December, which was the sharpest deterioration in overall business conditions in the Russian manufacturing sector since June 2009.
That’s the 13th time in 19 months that Russia’s PMI has been in negative territory.
A PMI above 50 signals growth, while a number below 50 signals a contraction.
“Signs of contracting business activity became more visible, the January HSBC Russia Manufacturing survey revealed,” writes Alexander Morozov, the Chief Economist of Russia, CIS and the Baltics at HSBC. “Meanwhile, price pressures intensified further, increasing the probability of a ‘bad equilibrium’: high price growth amidst falling demand. This is a signal to monetary authorities to be cautious with their rate policy and refrain from moving policy easing forward.”
Input price inflation accelerated for the six consecutive month to the second-highest on record, which has been linked to the effect of the weakening ruble on import prices. Consequently, this pushed output price inflation to a new high.
Additionally, Russian manufacturing employment declined for the 19th consecutive month, and at the fastest rate since July 2009.
And although manufacturing output has been the only sort of positive-looking number in Russia’s PMI reports over the last few months, it, too, dropped in January — the first time in eight months — as orders continued to decline.
Last week hasn’t been easy for the Russian economy: on Thursday, the EU foreign ministers decided toextend the sanctionson Russia by six months. Additionally, the Central Bankslashed interest rates to 15% down from 17%after the economy deteriorated following the rate hike in December.
On Friday, Morgan Stanley downgraded Russia’s growth forecast from 1.7%Y to -5.6%Y and revise our 2016 growth from a 0.8%Y recovery to a 2.5%Y recession, and noted that there was no “v-shaped” recovery analogous to that of 2009 in sight.
Meanwhile, on Saturday the Russian economy minister said that the GDP is expected to shrink by 3% in 2015 with oil prices at $US50 a barrel, a downgrade from the previous forecast of a 0.8% contraction.
So, overall: things aren’t looking so great.