Russia Economy in October 2014

Source: OPEC 10/14/2014, Location: Asia

In September, Russia held its first sale of ruble bonds after nine cancellations. The Ministry of Finance perceives current borrowing costs as acceptable and will fulfill plans to offer another RUB223 billion this year. It will also offer RUB15 billion of local currency securities due in January 2028. The yield on the notes fell in September by 44 basis points as a cease fire in Ukraine reduced the chances of further geopolitical escalations. The Economy Ministry estimated capital outflows may drop to $50 billion next year if the geopolitical situation stabilizes and borrowing costs are little changed after raising this year’s estimate to $100 billion from $90 billion in its macroeconomic forecast published in late September. Russian companies and banks will need to repay $53.5 billion in international debt in 4Q14 and as much as $106 billion in 2015, according to central bank data.

The manufacturing sector showed signs of a fragile recovery in September with the manufacturing PMI registering 50.4, down from 51.0 in August. The survey showed continued growth in terms of production and new business in September. New orders increased for the third month running and at the fastest rate since October 2013. However, the index was weighed down by a sharp drop in new export business during the month. New export orders have fallen continuously since September 2013. Output rose for the fourth month running, but the rate of growth slowed further and was historically weak. The survey indicated a rise in input prices in September at the fastest rate in four months. Prices charged for final goods also rose, with inflationary pressures widely linked to the weakening currency. It seems that import substitution and State orders must be supporting the manufacturing sector as compared to other sectors of the Russian economy.

The HSBC Russia Services PMI revealed that the private sector remained in growth territory in September. The Services Business Activity Index posted 50.5 in September. However, data suggested that the rise in total services business activity in September may not be sustained in the coming months as the volume of new business in the sector contracted for the first time since May. The volume of outstanding business held by Russian service providers fell at the steepest rate since March. The survey highlighted an acceleration in input price inflation to a five-month high. The manufacturing sector sent signals of improvement over the past three months, yet an investigation of the drivers behind that progress does not suggest a lasting expansion. Actually, stocks and the quantity of input purchases both decreased while labour shedding increased. This perhaps points to doubts about the economy and the shortage of working capital, which some companies explicitly reported. The GDP forecast for 2014 is unchanged this month at 0.3%, while 2015’s figure is slightly lower at 0.9%.


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