Global economy

The Russian economy is going down

Posted on April 1, 2014 | in News, World Economy | by
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While Putin creates a nightmare in Ukraine, at least Russian economy continues to go to crap.

This is the message from the latest manufacturing PMI report for March, which shows continued shrinkage in the sector.

Just pay attention this commentary from HSBC’s chief economist for Russia:

“Business activity in manufacturing kept deteriorating at a marginally faster rate, the March HSBC Russia Manufacturing PMI survey revealed. As before, the deterioration was broad-based, reflected in all key business activity indexes. Notably, export demand shrank at the fastest rate since 2009. As a lead indicator, export demand predicts the likely continuation of contraction in manufacturing in the coming months. Structurally, growth in new demand and output was seen only in the consumer goods sector. At the same time, this sector has sharply increased its inventories, which is a negative signal for future business activity.

“PMI Price Indexes are worth a special highlight this time. The Input Price Index jumped by almost 10 points to its highest level in three years. The Output Price Index has almost reached its three year maximum too, yet its value gain was less pronounced compared to the Input Price Index. Importantly, output price inflation was strongest in the consumer goods sector. Apparently, we observe a strong price action in the economy on the back of currency depreciation and fears of further depreciation down the road. Retail prices are still to follow the spike in producer prices, intensifying the pass-through effect from weaker rouble, we reckon.

“Surging prices and contraction of business activity is an ugly mix for financial markets. From the monetary policy perspective, this mix requires a continuation of tight monetary policy, we think. Indeed, the apparently increased business uncertainty could hardly be reduced by lowering policy rates. At the same time, elevated interest rates should help in stabilizing the exchange rate and reducing depreciation and inflationary expectations.”

Extraordinary demand. Higher prices. Russia’s economy is going to crap.

Here it is in chart form:

hsbc

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