Russia’s factory activity shrinks for first time in more than two years
Russia’s manufacturing sector contracted for the first time in more than two years in September, according to a business survey released on Tuesday.
The contraction was driven by lower levels of output, new orders and employment, with the country’s manufacturing Purchasing Managers’ Index (PMI) falling to 49.5 in September from 52.1 in August.
It was the first drop below the 50 mark, which separates growth from contraction, since April 2022.
The S&P Global report explained that the decline in production is attributed to weak demand and delays in supplier deliveries, which led to a shortage of inputs and negatively affected production levels.
Despite the challenges, Russia’s heavy spending on military equipment and weapons since the invasion of Ukraine in February 2022 has helped support the Russian manufacturing sector, which would otherwise have been hit hard, especially with some countries withdrawing from dealing with Russia.
Despite the decline, Russian manufacturers were able to turn to new export markets, with export demand rising to its highest level since August 2023.
The strongest demand came from Central Asian countries, which contributed to an acceleration in new export order growth in September.
However, supply chain issues and labor shortages are becoming more apparent, with some companies reporting a shortage of skilled candidates to fill open positions.
S&P Global reported that issues such as rail and international logistics delays have caused a sharp deterioration in supplier performance.
Despite the challenges, future expectations for manufacturing output remain high, although they have fallen to their lowest level since February 2023.
These hopes are due to expectations of stronger demand conditions, as well as plans to invest in new products and expand production facilities.
