The largest economies are experiencing an industrial recovery, demonstrated the May PMI indices. If in China leading indices indicate the actual exhaustion of the effect of the accelerated recovery in demand, in the US, the euro area, the indicators are at their peak, which fueled the growth of the indicator in Russia. The revival of the sector, at least in the Russian Federation, is threatened by a record rise in incoming and outgoing prices, as well as, probably, state regulation of the latter.
IN PRC The PMI rose in April, but only marginally – from 51.9 to 52 points, reflecting mainly the rise in industrial prices, which indicates high capacity utilization. IN The EU the same industrial PMI in May was a record high on record – 63.1 points against 62.9 points in April. Growth (the indicator value is above 50 points) has been observed for 11 months. Its growth is most active in the category of investment goods, which, among other things, continues to be reflected in the high growth rates of their imports in the Russian Federation.
According to the Federal Customs Service, imports from non-CIS countries in April, largely due to the low base of May 2020, jumped by 48%, amounting to $ 22.4 billion.
If we consider the seasonally smoothed month-on-month dynamics, then in April there is a noticeable slowdown in its growth rates to 3.3% against 7.2% in March, Raiffeisenbank analysts calculated. However, investment imports continue to grow rapidly, with a slowdown in the non-investment segment (chemicals and textiles) – which is most likely due to active government investments in infrastructure. IN USA the ISM index rose from 60.7 to 61.2 points, and there is already a shortage of employees in the industrial sector, which may limit growth in the near future, Capital Ecnomics believes, – the sub-index of new orders increased from 64.3 to 67 points, but the sub-index issue decreased from 62.5 to 58.5 points.
PMI and in Russian processing in May showed a noticeable increase – up to 51.9 points from 50.4 points in April, exceeding forecasts. Among the reasons for this acceleration is the resumed growth of new orders, including export orders, output and employment, while economists have questions about May growth (see Kommersant-Online). Prices for raw materials continued to rise markedly in May, although cost inflation slowed slightly against the April high, as did the growth rate of selling prices, which, however, demonstrates the second fastest growth record in the last six years, the authors of the PMI report note. Similar observations are contained in the current report of the Central Bank on inflationary expectations: “The price expectations of enterprises for three months in advance continued to grow, remaining above the local maximums of 2019-2020. The average expected rate of increase in prices in the next three months amounted to 3.9% in annual terms (in May 2020 – 2.3%). The main driver of the rise in price expectations was the accelerating growth in costs. The share of enterprises that noted this factor became the maximum in 12 years ”.
As a result, the rise in incoming and outgoing prices in industry, which is increasingly forcing representatives of the economic authorities of the Russian Federation to resort to the practice of regulating selling prices, threatens to slow down the recovery in the sector. At the same time, “the average level of the PMI index in Russia for three months remains about 51, indicating the absence of obvious changes,” notes Dmitry Polevoy from Lokoinvest. The assessments of enterprises regarding the dynamics of demand in the next three months have become less positive, the Central Bank notes. “Noticeable inflationary pressures have affected production expectations for the coming year, which have dropped to a four-month low,” says the Russian PMI report.
The rise in prices is not the only explanation for the deteriorating expectations in the sector. EPI polls show a sharp increase (maximum since 2014) in property rights guarantees among the factors that companies believe stimulate investment (see graph). At the same time, companies began to want noticeably less subsidies, guarantees and participation from the state, and more – tax benefits.
How the May industry looks in other assessments
As in the case of the PMI, an improvement in the industrial environment in May, but with a damping of demand, was previously recorded at the Gaidar Institute (IEP) (see Kommersant on June 1). In the CMASF, based on the dynamics of PMI, energy consumption by energy-intensive industries and the loading of industrial cargo by Russian Railways, they say about a weak increase in the sector’s output in May, adjusted for seasonality. Loading of export cargo grew rapidly in May, and their energy component even reached pre-crisis highs. Similar trends are recorded by the Central Bank in the monitoring of financial flows on May 13: “The dynamics of financial flows at the beginning of the second quarter indicates a noticeable increase in business activity compared to the previous quarter in industries focused on external and intermediate demand. In consumer and investment sectors, payments stabilized near the levels of the previous quarter, indicating that growth in domestic demand sectors is likely to return to a stable medium-term trajectory as the most active phase of recovery ends. ”