The headline seasonally adjusted IHS Markit Russia Manufacturing PMI registered 51.9 in May, up from 50.4 in April, its strongest improvement since March 2019, Markit said in a press release on June 1.  

Any result about the 50 no-change mark represents an expansion.  

“The improvement in operating conditions across the Russian manufacturing sector was modest overall, and the sharpest in over two years. May data also signalled the fifth successive monthly expansion across the sector,” Markit said.  

Russia’s economy is moving out of the recession caused by the multiple shocks that hit last spring. The economy contracted by over 2% in both January and February but returned to a modest 0.5% growth in March.  

At the same time, as bne IntelliNews has reported, corporate profits are currently their highest in five years on a comparison of the month of March with previous years, and business confidence has gone positive for only the second time ever.   

Consumers remain  less optimistic, but inflation extremely high inflation expectations have begun to fall and spending it ticking up, as evidenced by an upswing in the Watcom shopping index that should further improve sentiment as the second quarter wears on.  

“Overall growth was supported by a renewed increase in new order inflows and subsequent quicker rise in production. Greater new business also led to a quicker rate of job creation, despite a further strong fall in backlogs of work,” Markit said.

Unemployment has also continued to fall steadily and was down to 5.2% in April, almost back to the pre-crisis lows under 5% it fell to in 2019. That trend so continue as companies have started to man-up to meet the increased demand.  

“The rate of growth [in new hires] was the steepest since December 2018 as companies stated that greater employment was necessary to support production requirements. Nevertheless, backlogs of work continued to decline, and at a strong rate,” Markit said.  

The fly in the ointment is inflation remains stubbornly high. Inflation rose to 5.8% in the first months of this year, well above the Central Bank of Russia (CBR) target rate of 4%, but dropped back to 5.5% after the CBR hiked rates aggressively in March (25bp) and April (50bp). However, preliminary result for May suggest that inflation ticked up again to 5.8% making another rate hike in June likely to bring the rate to 5.25%-5.5% from the current 5%.  

Markit’s panel also reported upward pressure on prices. “Input prices continued to rise markedly, although the rate of cost inflation softened slightly from April's recent high. The pace of output charge inflation also eased, but was still the second-fastest for over six years. Marked inflationary pressures weighed on output expectations for the year ahead, which slipped to a four-month low,” Markit said.  

Despite the problems with inflation over all momentum was gathering in May, as the rate of the upturn quickened to the fastest since February. Greater production was widely attributed to a renewed increase in new order inflows and stronger client demand, Markit reports.  

“New order inflows returned to expansion in May, with the rate of growth the sharpest since August 2020. The increase in total sales was often linked to an uptick in customer demand, with some firms also noting that a renewed rise in new export orders supported total sales. The increase in foreign client demand brought to an end a four-month sequence of decline, as companies suggested that the acquisition of new customers contributed to the upturn,” Market said.  

“In line with stronger demand conditions, firms were able to partially pass on higher costs to their clients in May. Similar to the trend in input prices, charges rose at a softer rate than in April, but at the second-quickest pace since February 2015,” Markit added.  

Output expectations regarding the year ahead remained upbeat midway through the second quarter, and were historically elevated. That said, the degree of confidence dipped to a four-month low amid soaring input prices and pressure on margins.