... but manufacturing slump contributes to economic uncertainty
Key index at its lowest in almost two years with plan to increase VAT keeping policy tight
Russia’s economy misfired at the end of the past quarter as a gauge of manufacturing unexpectedly declined for a second month, adding to uncertainty about the outlook after changes in tax policy and a recent upward revision of data for factory output.
The Manufacturing Purchasing Managers’ Index fell to 49.5 last month, the lowest in almost two years and down from 49.8 in May, IHS Markit said.
All six economists in a Bloomberg survey forecast a reading of at least 50, the threshold that separates contraction from growth. Separately, the Federal Statistics Service confirmed its growth estimate for first-quarter gross domestic product at 1.3 per cent from a year earlier, matching the median of seven forecasts in another poll of analysts. GDP rose an annual 0.9 per cent in the final three months of 2017. “Weaker output growth and the first contraction in new orders since July 2016 were key factors behind a deterioration in operating conditions in June,” IHS Markit economist Sian Jones said. “Less robust client demand was also evident in reduced pressure on capacities.”
The economy took a surprise downbeat turn at the end of the past quarter even after the data review by the statistics service going back as far as 2016 more than doubled last year’s gain in industrial production from its previous estimate. Alfa-Bank has warned that the revision for 2017 creates a “negative base effect for growth” in the second half of this year.
As a result of the changes, the central bank raised its assessment of economic expansion in the second quarter to between an annual 1.8 and 2.2 per cent.
“The mixed signals in the data -- stronger manufacturing, a sliding PMI -- probably amount to a few tenths of a percentage point on GDP growth going forward. The broader picture is sluggish expansion, with none of the engines of the economy set to deliver much additional lift,” Scott Johnson of Bloomberg Economics, said.
The agency in June cited its shift to a new classification and additional data provided by companies for upgrading last year’s gain in industrial production to 2.1 per cent from 1 per cent. Its estimate for the increase in the first quarter now stands at 2.8 per cent, up from 1.9 per cent. Meanwhile, Russia’s government will lower its forecast for economic growth next year as a plan to raise VAT keeps monetary policy tight and curtails expansion, according to an official familiar with the matter. Under the updated view, GDP will rise 1.4 per cent in 2019, compared with a previous projection of 2.2 per cent, the person said last week.
“On the basis of the revised upbeat manufacturing data, I expected June’s manufacturing PMI to better reflect sentiment among manufacturers,” said Tatiana Orlova, an economist at Emerginomics in London. “Perhaps manufacturers in some sectors are worried that an increase in value added tax could dampen future demand for their products. Something seems to be bothering them.”