Why there are minor hopes for growth in the Russian economy

Market Realist

Key signs that Russia is attempting economic growth (Part 1 of 4)

Russia’s economic output

Russia (RSX) showed marginal output increases in August after declines the previous month, which had been the first contraction in four years. Compared to the other BRICs (Brazil, Russia, India, and China), China (FXI) showed similar behavior, with a slight rebound after a sluggish performance in terms of July’s output. On the other hand, Brazil (EWZ) dropped further, while India (PIN) dropped like a rock, posting the fastest rate of decline since March 2009.

Conditions remain depressed

But despite the modest increases in output, the overall manufacturing conditions remained depressed, keeping Russia’s overall PMI score below 50 for the second month in a row. As a refresher, the Purchasing Manager’s Index is composed of five subindices that cover key elements of the production supply chain: new orders, output, employment, suppliers’ delivery times, and stocks of purchases. Values above 50 imply expansion, while values below 50 imply contraction. There are over 300 manufacturing companies that participate in the survey, and their answers are weighted and stratified by company size and industry in order to offer a fair representation of the Russian economy as a whole.

In line with the increased output, there was a decent pick-up in new orders—but only domestically, as new export orders have remained stagnated for several months now. The growth was mainly around investment and consumer goods, with intermediate goods posting a marginal slowdown. The increase in growth rate was very limited and remains below the subindex’s long-run average of 54.5. On the exports side, it seems that global economic conditions challenged the orders from established markets and the few gains came from opening new markets.

Continue to Part 2

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