Having survived the worst inflationary shock in 12 years, Russian industry fell into recession again.
Manufacturing PMI, which is calculated by IHS Markit based on output, order and employment data, plunged to its lowest level since November 2020 in July.
The sharpest drop since the peak of the pandemic lowered the indicator to 47.5 points, plunging it deeper into the recession zone, which starts below the conditional bar at around 50.
“The decline in production was driven by weak customer demand and a drop in new sales,” Markit states in the release.
Export demand fell at a record since January, with new orders falling for the sixth of the last seven months. New orders in the domestic market fell for the second month in a row at the fastest rate since November last year, following a sharp hike in shipping prices that factories were forced to accept due to soaring cost inflation.
Since the beginning of the year, the price index for raw materials and supplies has been at record levels for 7 years. At the same time, the persistence of inflationary pressures – more than half a year of chronically rising prices – has become unprecedented in the 12 years of available data.
In the course of the survey, industry representatives said that higher raw material prices were driven by higher supplier costs and unfavorable exchange rate movements.
Fixing the decline in revenue, manufacturers are rapidly cutting “personnel”: the rate of layoffs in the sector has become the highest since November.
According to Rosstat, the annual industrial growth rates exceeded 10% in May and June, but these figures only reflect the pit into which the economy fell last year, and month on month in all sectors, except for raw materials, production volumes are falling for five months in a row.
In February, the decline in the manufacturing sector amounted to 1.9% versus January, in March – 0.2% versus February, in April production volumes were another 0.2% lower than in March, and in May and June they sank by an additional 1%. and 1.4% every month, experts from the HSE Development Center calculated.
For four of the last five months, food production has been falling (by 2.9% in June compared to May). The production of drinks, clothing, and medicines is declining by the same amount.
For two months in a row, the output of petroleum products has decreased, while the auto industry is steadily heading into a recession, reducing production without interruption from February to June (by 1%, 2.2%, 0.3%, 1.7% and 2.9% month by the month, respectively).
“The recovery rise in the intensity of industrial production ended in January 2021,” after which “the dynamics passed into a stage of stagnation,” HSE experts write.
Statistically, the picture on industry by the end of the year will look good: the softening of the terms of the OPEC + deal, which will allow Russia to increase oil production, has an effect, says Natalia Orlova, chief economist of Alfa-Bank.
Oil money, which will come to the economy, will support other sectors, she is optimistic: “The recovery in production may have some inflationary effect, increasing pressure on the labor market and stimulating stronger demand in the manufacturing sector.”