Russian Manufacturing Activity in November 2024

Russian manufacturing activity showed marginal growth in November 2024, according to an S&P Global survey released on December 2, 2024. The Purchasing Managers' Index (PMI) for the manufacturing sector rose to 51.3 points (from 50.6 in October), indicating a slight expansion. A value above 50 signifies growth, while a value below 50 signals contraction.

Key Highlights:

1. Growth Driven by New Orders:
   • The increase was supported by a rise in new orders and improved demand conditions.
   • However, the pace of growth remained below the series average.
2. Export Markets:
   • Russian manufacturers are gradually tapping into new export markets, with orders rising for the fourth consecutive month.
   • Export growth, however, slowed compared to October.
3. Employment Challenges:
   • Employment continued to decline due to difficulties in replacing voluntary leavers.
   • Labour shortages remain a critical issue as Russia's unemployment rate fell to a record low of 2.3%.
4. Cost Increases:
   • Supplier price hikes and unfavourable exchange rate movements drove up costs.
   • The weakened ruble, recently hitting its lowest level since March 2022, added pressure, prompting the central bank to intervene.
5. Supply Chain Issues:
   • Delays in supplier deliveries persisted, mainly due to challenges with rail transport and logistics routes.
6. Business Optimism:
   • Business confidence reached its highest level since June, fueled by modernization and new product development investments.

Conclusion:

Russia's manufacturing sector benefits from moderate demand recovery and new export market opportunities. However, labour shortages, rising costs, and persistent logistics issues weigh on efficiency. The weak ruble and geopolitical tensions remain key factors shaping the economic landscape.

Source: Reuters

Comparing the EU and Russia based solely on PMI figures can be misleading and doesn't provide a full picture of the broader economic and geopolitical context. On the surface, Russia's marginal growth in its PMI may seem like a positive sign compared to the EU's contraction. However, this perspective is overly simplistic and ignores critical economic structures, wealth, and resilience differences.

1. Differences in Economic Scale and Level

• EU:
  • The European Union is one of the world's largest and wealthiest economic blocs, with a high standard of living, strong domestic markets, and global integration.
  • Even during a contraction, the EU operates at a much higher absolute industrial output level and economic strength than Russia.
  • The EU's economy is highly diversified, reducing its dependence on a single sector or export market.
• Russia:
  • Russia's economy is smaller, less diversified, and heavily reliant on commodity exports, particularly energy. This dependence makes it more vulnerable to external shocks.
  • Russia's PMI growth is partially driven by military production and state spending, which are not sustainable drivers of long-term economic health.

2. Context of PMI Figures

• The PMI reflects changes in activity but not the absolute level of economic output. While Russia's PMI indicates a slight recovery, its absolute production level remains far below the EU's.
• The EU's contraction in PMI does not necessarily indicate a weaker economy overall; its industrial capacity and productivity still far exceed Russia's.

3. Structural Differences

• Labor Market:
  • Russia faces labour shortages with a record-low unemployment rate, which can constrain production capacity.
  • The EU benefits from larger, more dynamic labour markets and higher investments in technology and innovation, which support long-term growth.
• Investment:
  • The EU invests significantly in green technologies and digitalization, paving the way for sustainable growth.
  • Russia's economy, in contrast, relies heavily on short-term revenues from military production and commodity exports.

4. Socioeconomic Factors

• Russia has a much lower standard of living, lower GDP per capita, and less developed social safety nets than the EU.
• The EU's wealth and economic stability far surpass Russia's despite short-term challenges like inflation or geopolitical uncertainties.

Conclusion: Is Russia "poor"?

Compared to the EU, Russia's economy is weaker, less diversified, and more fragile. This is evident in lower incomes, a lower standard of living, and limited economic resilience.The slight uptick in Russia's PMI does not reflect fundamental strength but specific factors like military production and state intervention. In contrast, despite facing current challenges, the EU operates on a far more robust and sustainable economic foundation.