Russia Manufacturing Output April 2008

Russian manufacturing expanded at the slowest pace in six months in April as new orders fell and inflation accelerated according to the VTB Bank Europe's Purchasing Managers' Index, which fell to 53 from 54.6 in March, the lowest level since the 52.9 reading registered last October. A figure above 50 indicates growth, below 50 a contraction. The bank surveyed 300 purchasing executives in order to compile the index.

President Vladimir Putin told the Cabinet last month to pay ``close'' attention to the strengthening of the ruble against the dollar. The strength of the currency is making imports cheaper relative to domestically-produced goods, putting pressure on Russian manufacturers. The ruble has climbed 4 percent against the U.S. dollar this year. Imports account for an estimated 49 percent of the local retail market, highlighting the need to boost domestic production, Prime Minister Viktor Zubkov said on April 8.

Russian manufacturers faced ``severe upward pressure on their purchasing costs in April,'' VTB also said in the statement.

However allowing the ruble to rise is desireable since Russia is suffering from acute inflation at the present time - inflation accelerated to an annual 13.3 percent in March, the fastest pace in more than 2 1/2 years - and a rising currency can to some extent offset the upward trend in prices.



However if the underlying dynamic behind the price rises - which appears to be intimately associated with labour shortages associated with Russia's rather special demography - is not addressed, then letting the ruble rise will simply serve to take away price competitiveness from domestic manufacturing industry, a process whose consequences we may be already starting to see.