Russian factory activity grows fastest in seven years in December – PMI According to Reuters

© Reuters. PHOTO: An employee works on the production of road signs at the KrasDorZnak factory in the Siberian village of Voznesenka, Krasnoyarsk region, Russia May 29, 2019. REUTERS/Ilya Naymushin

(Reuters) – Activity in Russia’s manufacturing sector grew at the fastest pace in nearly seven years in December, a business survey showed on Friday, although new export orders fell for a second straight month.

The S&P Global Purchasing Managers’ Index (PMI) for manufacturing rose to 54.6 in December from 53.8 in November and moved further above the 50 mark that separates expansion from contraction. It was the highest since January 2017.

Output rose at the fastest pace in seven months, and new orders also surged again.

“However, stronger client demand was largely concentrated in the domestic market as new export orders fell for the second consecutive month,” S&P Global said in a statement.

“Less demand from clients in key export markets led to the fastest decline in new business from abroad since July.”

After invading Ukraine in February 2022, Moscow is spending heavily on production and pouring money into the defense sector to increase military production. The sector’s growth in the nearly two years since then has been largely dependent on domestic demand.

Manufacturers are still grappling with logistical upheavals due to Western sanctions and the high cost of imported goods, hampered by a weak ruble and high inflation. The survey showed that the rate of inflation is easing, S&P Global said.

Despite labor shortages in Russia, with unemployment at a record low of 2.9%, firms increased staffing to try to reduce the backlog of work, S&P Global said, although companies remained optimistic about the future.

“Confidence stemmed from planned investment in new products and machinery,” S&P Global said. “The level of positive sentiment was historically elevated despite falling to a three-month low.”