Page 26 - RusRPTOct19

4.3 Industrial sectors and trade 4.3.1 Producers PMI
The Russian manufacturing sector registered the worst deterioration in operating conditions for more than a decade in September. The IHS Markit Russia Manufacturing Purchasing Managers’ Index crashed to 46.3 from 49.1 in August – the lowest level since 2009.
“The solid decline in the health of the Russian goods producing sector was the sharpest since May 2009. The latest quarterly average (48.2) signalled the worst performance across the sector since the second quarter of 2015,” Markit said in a press release.
Any PMI index result below the 50 no-change mark represents a contraction. September’s sharp contraction bucks the trend of a solid but modest recovery in manufacturing from earlier in the year.
Economists say that the poor business climate and the Kremlin’s failure to make deep structural reforms have constrained Russia’s growth potential to 1%-2% in the medium-term. The Kremlin is gambling on its May Decrees and heavy spending on the national projects to boost growth from 2021, but economists remain sceptical that this programme will make any real difference.
September’s production declines and a fall in new business were driving the fall as the nascent recovery seemed to stall in the summer months. Owners responded by sacking workers and business confidence tumbled to its lowest level since December 2017.
It is not clear if the fall in confidence is to some extent seasonal, as business uncertainty has risen in the autumn every year for the last three years. In 2018 business confidence as measured by a Rosstat survey was at -2 all spring and summer but sank to -8 in December. A similar pattern was seen in 2017 when business confidence actually broke into positive numbers for the first time since the boom years, before collapsing back to -5% December.
This year the Rosstat business confidence has been running at a modest -1 and more recently -2 level for most of the spring and summer, but if the Rosstat survey follows the same pattern as previous years – and the PMI results strongly suggest it will – then uncertainty amongst business leaders will rise sharply from here through to the end of the year.
However, the round of layoffs seen in September have not fed through to Russia’s overall unemployment, as the unemployment rate fell to a post- Soviet all time low of 4.3% in August, down from 4.4% in the previous two months. Even if the Rosstat unemployment rates tick up in September when they are released, the Russian labour market remains drum-tight and the country is still enjoys de facto full employment.
The lackadaisical production activity in the manufacturing sector is also contributing to faster than expected falls in the inflation rates. In 2018 inflation fell to another post-Soviet low of 2.3% but then grew in the second half of the year on the back of a very tight monetary policy as the Central Bank of Russia (CBR) prepared for another round of destabilising sanctions, which in
26 RUSSIA Country Report October 2019 ww.intellinews.com