Russian factory activity shrinks in January at fastest rate since mid-2009

[MOSCOW] Russian manufacturing activity shrank in January at the fastest rate since mid-2009, a survey showed on Monday, as weak oil prices and the Ukraine crisis take their toll on the economy.

The HSBC Purchasing Managers' Index for the manufacturing sector, which accounts for about 16 per cent of the economy, fell to 47.6 from 48.9 in December, below the 50 line that separates expansion from contraction and the lowest reading since June 2009.

The survey also showed a continued uptick in input prices, mainly due to the weaker rouble, while output price inflation reached its highest in over a decade. "Companies combined much lower input purchasing activity with faster de-stocking and shed labour at a fast rate, preparing for difficult times yet to come," said Alexander Morozov, chief economist for Russia and CIS at HSBC.

Russia's industrial output was volatile last year, often surprising on the upside, which some analysts attributed to a boost to manufacturers resulting from a falling rouble.

Economists are pessimistic on the outlook overall, however, after the price of oil, Russia's biggest export, fell 60 per cent in the second half of 2014 and as Western sanctions on Russia over its part in the crisis in Ukraine bite.

Mr Morozov at HSBC also warned of the danger of galloping price growth accompanied by falling demand. "This is a signal to monetary authorities to be cautious with their rate policy and refrain from moving policy easing forward," he said.

REUTERS