Russian Manufacturing Contracts in December

Lara Sheldon - Author

Dec. 30 2015, Published 2:18 p.m. ET

Russian manufacturing PMI fell to 48.7 in December

Russia accounts for about 1.8% of world’s GDP (gross domestic product). Moreover, manufacturing activity accounts for about 15% of Russia’s GDP. According to Markit, Russia’s manufacturing PMI (purchasing managers’ index) declined by 1.4 points and came in at 48.7 in December, as compared to 50.1 in November 2015.

With the decline in manufacturing, the VanEck Vectors Russia ETF (RSX), the iShares MSCI Russia Capped ETF, (ERUS), and the Direxion Daily Russia Bull 3X ETF (RUSL) have fallen 10.9%, 11.2% and 23.9%, respectively, over the past month, as of December 29. Mechel OAO (MTL), Mobile TeleSystems PJSC (MBT), Gazprom (OGZPY), and LUKOIL (LUKOY) have fallen 8.9%, 11.8%, 8.5% and 14.9%, respectively, over the past month, as of December 29.

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Downturn in manufacturing sector reported in December

Commenting on Russia’s manufacturing PMI survey data, Samuel Agass, an economist at Markit, said in a press release: “The headline PMI figure slipping below the crucial 50.0 mark will come as disappointing news to the Russian manufacturing sector, having seen a stabilisation over the previous two months.”

“Production and new orders returned to contraction territory in December, reflecting weak demand conditions, particularly from export clients. As a result, job shedding continued amid a lack of pressure on capacity among manufacturers.

“For what, in the most part, has been a difficult 2015 for goods producers, recent months appeared to signal a shift in the sector to a higher gear. However, latest survey figures suggest manufacturers may endure a challenging start to 2016 unless some action can be taken to stimulate demand for goods.”

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New orders and production declined in December

In December, the drop in the manufacturing index was mainly the result of a decrease in production activity in the economy. Also, with a decline in export orders, new orders fell in December.

Employment and inventory levels were lower in December

With outstanding work declining and the work backlog falling, manufacturers continued to shed jobs. The decline in orders has kept input purchases lower. Manufacturers were also cautious about inventory levels.

The price pressures were evident in the manufacturing sector, as both output and input charges increased.

The Russian economy failed to show resilience and contracted in December. With inflation rising further, the economy may face more challenges going ahead.

In the next part of this series, we’ll explore trends in UK home prices.


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