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Why Russian Manufacturing Activity Fell in June 2017

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Manufacturing activity in June 2017

Manufacturing activity in Russia fell to 50.3 in June 2017 from 52.4 in May 2017. The manufacturing PMI (purchasing managers’ index) in June 2017 showed the weakest growth in the last 11 months of expansion. The new work orders rose at a slower pace in June 2017 as compared to the previous month.

The economic sanctions from the West seem to be impacting the economic activity in Russia (ERUS), as it dropped close to the critical mark of 50 in 2017. Let’s look at Russian manufacturing PMI over the last year in the below chart.

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Operating conditions in June 2017

The Russian manufacturing sector saw a marginal improvement in its operating conditions in June 2017. The slower rise in both output and new orders majorly impacted the manufacturing activity in June 2017. The declines in employment and new export orders also contributed to the overall weaker activity in June 2017.

New orders and employment

The output rose for the 14th straight month as of June 2017, but at a slower pace. New orders also increased at a slower pace in June 2017 for the 11th consecutive month. The new business orders from world markets continued to contract in June 2017 with the weakest performance this year so far. Employment also dropped for four consecutive months in June 2017 resulting from slower manufacturing activity.

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Price pressures

Price pressures remained moderate in June 2017 as input prices increased at a faster pace during the month. The cost of raw materials increased in June resulting from exchange rate adjustment. The output prices also increased for the third straight month, although at a moderate pace in June 2017.

Expectations

Russian manufacturer optimism remained strong towards future growth as of June. The business confidence reached a three-month high in June. The improved output expectations in 2017 are underpinned by product expansion and robust underlying demand.

The iShares MSCI Russia Capped ETF (ERUS), which tracks Russian equities, dropped by about 9% so far in July 2017 as of July 20, 2017. The slump in oil prices (USO) (UCO) and continuance of sanctions from the US (SPY) and Europe (VGK) have affected the market performance in Russia.

Let’s look at the services PMI over the last year in the next article.

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