uploads///Russia Manufacturing PMI Declines in June

Why Russian Manufacturing Activity Fell in June 2017

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Manufacturing activity in June 2017

Manufacturing activity in Russia dropped to 50.3 in June 2017 compared to 52.4 in May. The country’s manufacturing PMI in June indicated its weakest growth in the last 11 months of expansion. New work orders grew at a slower pace in June.

The economic sanctions by the Western world seem to be impacting economic activity in Russia, as it continues to lose momentum in 2017. The chart below illustrates the Russian manufacturing PMI over the last year.

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Business conditions in Russia in June 2017

The operating conditions in the Russian manufacturing sector improved marginally in June 2017. The slower growth in both output and new orders primarily impacted the manufacturing activity during the month. The slump in employment and new export orders also contributed to the overall weaker activity.

New orders and employment

Russia’s output grew for 14 consecutive months through June 2017, although at a slower pace. Also, new orders increased at a slower pace for 11 consecutive months through June.

New business orders from international markets continued to shrink in June, with the weakest performance in 2017 year-to-date occurring during the month. Employment also dropped for the fourth straight month in June, resulting from weaker manufacturing activity.

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Price pressures

Price pressures remained mixed in June 2017 as input prices increased at a faster pace. The exchange rate adjustment resulted in a rise in the cost of raw materials in Russia during the month. Output prices also rose for the third straight month, although at a more moderate pace.

Expectations

The optimism level of Russian manufacturers toward future growth remained strong in June. Business confidence reached a three-month high during the month. The improved output expectations in 2017 stem from solid underlying demand and product expansion, according to the July Markit report.

The iShares MSCI Russia Capped ETF (ERUS), which tracks Russian equities, fell ~5% in June 2017. The slump in oil prices (UCO) (USO) and ongoing Western sanctions—including the US (SPY), Europe (VGK), and the UK (EWU)—have affected the market performance in Russia.

Let’s look at the manufacturing activity in Mexico in June 2017 in our next article.

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