Russian manufacturing activity shrinks for 11th straight month
Business confidence fell to its lowest since the measure of future output was first included in the survey 8 years ago
Russian manufacturing activity shrank in March for the 11th straight month and at its sharpest pace since November as the coronavirus outbreak and falling client demand affected production, a survey of businesses showed on Wednesday.
The Markit Purchasing Managers’ Index (PMI) for factory activity fell to 47.5 in March from 48.2 in February, remaining below the 50.0 mark dividing expansion from contraction.
With uncertainty clouding the global economic outlook, business confidence fell to its lowest since the measure of future output was first included in the survey eight years ago.
“The Russian manufacturing sector remained in contraction in March, as the impact of the outbreak of COVID-19 began to emerge in global supply chains and external demand conditions,” said Sian Jones, an economist at survey compiler IHS Markit.
“Uncertainty regarding the strength of the global economy and future demand weighed heavy on manufacturers’ minds as business confidence sank to a series low.”
The employment index rose in March to 49.9 from 47.9 despite reports of redundancies as production requirements fell and new orders contracted for a 10th successive month.
Disruption related to the coronavirus and measures imposed to contain it in Russia and elsewhere nevertheless means the future outlook is gloomy.
“Our current forecast for industrial production indicates a contraction in year-on-year terms in the first quarter of 2020, with the decline accelerating through to the latter stages of the year,” Jones said.
Russia’s central bank has dropped an idea to tighten mortgage supervision rules and is trying to limit the impact of coronavirus on domestic banks via a wider package of joint measures with the finance ministry, three sources familiar with the discussions said.
The central bank started to clean up the mortgage sector and to tighten supervision on everything from related party loans to consumer lending following a domestic financial crisis in 2014-15 triggered by Western sanctions and low oil prices.
The central bank has already introduced a so-called ‘individual’s indebtedness ratio’ and has obliged banks to set aside more provisions when issuing a consumer loan to a highly indebted borrower. From July 1, it had planned to require Russia’s roughly 400 banks to apply the same rule on mortgages: capital buffers were to rise significantly if a borrower was able to cover no more than a fifth of the property’s value from his or her own funds.
More capital buffers would mean fewer funds for other types of lending as well as higher rates for the most indebted borrowers, increasing their burden.
After consultations with the finance ministry, the central bank will not introduce the new mortgage rules from July, said the sources, who include two state bankers and a high-ranking official familiar with the details.
The authorities have long tried to help citizens on low incomes and President Vladimir Putin makes fresh social support pledges regularly, though the number of people officially classified as living in poverty remains high.
The type of mortgages the central bank decided not to touch are the most common in Russia.
Russia spent around 1.5 trillion roubles ($19 billion) to support the banking sector in 2014-2015 and the finance ministry wants to limit the amount of banking losses - and state support - caused by coronavirus, the first state banker said.
“This is the most obvious step now: mortgage lending should not stop, the share of such deals is huge,” he said.
The sources also said the finance ministry had asked the central bank to drop a requirement for its biggest banks - 11 in total - to set aside more capital as they are classified as ‘systemically important’.
It was unclear whether the central bank took the second decision. The central bank and finance ministry did not immediately reply to Reuters’ requests for comment.
They have already announced a package of immediate measures to support the financial sector, ranging from the rouble to small and medium-sized businesses and the banking sector.
Meanwhile, US Energy Secretary Dan Brouillette spoke with his Russian counterpart Alexander Novak about the slump in global oil markets on Tuesday, and they agreed to hold future discussions involving other major world oil producers and consumers, the US Energy Department said in a release.
The call occurred a day after President Donald Trump and Russian President Vladimir Putin agreed in a phone conversation to have their top energy officials discuss the drop in global oil markets.