Analyst explains booming manufacturing activity in Russia

The manufacturing sector in Russia has been posting growth for the seventh month running, RIA Novosti reported citing S&P Global.

According to S&P Global, the Purchasing Managers’ Index (PMI) in Russia’s manufacturing sector hit 54.5 in September, up from 52.7 in August. A PMI above 50 represents an industry’s expansion against the previous period, while a PMI under 50 indicates a contraction. In Russia, PMI has been signaling growth for seven months.

As the analysts note, expansion is largely driven by domestic demand, with employment in the real sector climbing at the steepest rate in almost 23 years. S&P Global also recorded a sharp improvement in operating conditions.

This trend is a consequence of the market’s confident adaptation to external constraints, which is happening faster than expected. Manufacturing, construction, wholesale and retail trade are steadily expanding.

Indeed, capacity utilization for the total manufacturing sector has been growing nonstop since the beginning of the year, notes Artyom Deyev, head of analytics at AMarkets. It rose from 80.3% in the first quarter to 81% at the end of the second quarter, hitting a historical high according to the Central Bank.

“I believe this is happening because the economy is reorienting to the domestic market. The import substitution policy requires rapid saturation of the market with goods that were not available before, and that drives a strong growth in production,” the expert explained to Invest Foresight.

At the same time, the mining sector is showing the fastest growth, followed by manufacturing and construction.

“Taking this dynamic into account, I believe that factory activity will keep growing at the same pace for at least three or four more months,” Artyom Deyev forecasts. “And although it may slow down by next spring, we should not expect any drastic changes until import substitution is 100% completed.”

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