A quick note on Russia.
We’ve been saying that it’s time to pay more attention again to the country’s economic troubles. The Ruble has been getting smoked lately, and the country is suffering from many of the same forces that are dragging down other emerging markets.
To that end, the latest PMI report from Russia is very poor looking.
From the report:
The survey’s headline figure is the HSBC Purchasing Managers’ Index™ (PMI) — a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy. The PMI registered below the 50.0 no-change threshold for the sixth time in seven months in January, indicating an ongoing downturn in business conditions in the Russian goods-producing sector. Moreover, the PMI declined from 48.8 to 48.0, the lowest reading since June 2009. New orders continued to decline marginally in January, amid reports of weak underlying demand. The rate of contraction accelerated slightly to the fastest since July 2011, and international demand continued to weigh on total inflows of new work as new export business fell for the fifth month running. The current sequence of declining new export orders is the joint-longest in over four years.
This chart drives home the deterioration:
Here’s more on what’s going wrong in the Russian economy from HSBC economist Alexander Morozov:
“Manufacturers started the year on a minor note, the January HSBC Russia Manufacturing PMI survey found. Indeed, all key economic activity indicators point to a broad-based contraction. Notably, manufacturing output decreased for the first time since July last year. In conjunction with the reported decline in new orders, ongoing cuts in staffing, faster suppliers’ delivery times and a stronger rise in output prices, the overall picture in manufacturing looks pretty gloomy.
“Importantly, consumer goods producers reported falling output levels for the first time in many months. Apparently, a sharp moderation of demand growth caught them by surprise, forcing them to increase their inventories for now. Intermediate goods producers got some support from growth in export demand that allowed them to increase output amid declining domestic demand.
“Generalising the January PMI results, we see the Russian economy losing its key driver — private consumption growth. Investment demand has not recovered yet to become a new growth driver, while export demand for intermediate goods is not strong enough to offset weakness in the two other sectors.
“It follows that surprisingly benign official industrial growth data for December, indeed for 2013 as a whole, will unlikely be sustained in the beginning of 2014. Manufacturers face a serious risk of recession in the coming months, we think. Partial import substitution on the back of a weaker currency and improvement in export demand could mitigate this risk.”
This chart shows a 10-year look at the dollar vs. the ruble, which really drives home the weakness of late in the Russian currency.