Russian Manufacturing Sector Shows Signs of Slow Recovery Amid Ongoing Challenges

The Russian manufacturing sector experienced a continued decline in April, albeit at a slower rate, as improvements in both output and new orders coincided with the weakest increase in input costs since early 2020, as reported by S&P Global.

The seasonally adjusted S&P Global Russia Manufacturing Purchasing Managers’ Index improved to 49.3 in April from 48.2 in March, indicating a second consecutive month of worsening conditions in operations, while still remaining under the neutral mark of 50.

The most recent data points to a slight overall downturn.

”The data for April showed that output among Russian manufacturers continued to contract, but the decline occurred at only a minimal pace,» noted S&P Global.

The reduction in output and new sales was attributed to ongoing weak demand in both domestic and global markets, with companies identifying diminished purchasing power among customers and increased competition as significant constraints on growth.

Following substantial economic growth in 2024, the Central Bank and Finance Ministry have implemented non-monetary policy measures to deliberately slow down the economy in response to persistent inflation, leading to expectations of an economic cooldown this year.

As authorities attempt to facilitate a smooth transition for the economy, there is ongoing discussion about whether a surge in bankruptcies will occur later this year or if the Russian economy is more resilient than it initially seems.

President Vladimir Putin reassured business executives and the public last week that the current slowdown in GDP growth—1.9% year-on-year for January-February—is a strategic correction aimed at controlling inflation. The Economic Development Ministry reported a 4.3% GDP growth last year.

“On the surface, these numbers indicate that the Russian economy is reaching its pre-COVID structural limit while also funneling substantial resources into the war effort and providing significant cash payments to contract soldiers,” analyst Nicholas Trickett observed in a note for Riddle Russia.

Since December, industrial output has been trending towards stagnation, further hindered by a decrease in investment in resource extraction, Trickett added.

Finance Minister Anton Siluanov expressed a more positive outlook, forecasting a 1.8% economic growth for Russia in a high-risk scenario for 2025, compared to 2.5% in the base case.

New order totals fell for the second consecutive month, with a decline in new export sales as well, according to S&P Global. Nonetheless, manufacturers demonstrated resilience in purchasing activity, which edged up for the first time in three months, albeit marginally. Inventories of both pre-production and finished goods continued to decrease as companies utilized stock to maintain current production levels.

Input cost inflation has eased for five straight months, reaching its lowest level since February 2020.

“Favorable currency exchange rates against the dollar reportedly led to slower price increases for imported materials,” S&P Global explained. The inflation rate for output charges also decelerated, hitting its slowest rate since January 2023, as businesses sought to competitively price their goods and boost sales.

Employment within the manufacturing sector saw a decline in April, ending a three-month streak of job additions.

“The reduction in workforce numbers halted a three-month pattern of job creation, but was only slight overall,” the report remarked, noting that companies mostly opted not to replace employees who left voluntarily due to adequate workforce capacity.

Backlogs of work decreased at the fastest rate in two and a half years, while supplier delivery times stabilized at their most consistent level since November 2019. Some companies reported improved availability of inputs amid weaker demand, though others still faced supply chain disruptions.

Despite the decrease in orders and a minor dip in sentiment from March, optimism persisted among Russian manufacturers.

“Confidence levels dipped slightly from those witnessed in March, yet remained historically robust,” S&P Global reported, highlighting expectations for stronger demand and plans for product expansion.

This article originally appeared in bne IntelliNews.