Russia Trails the Pack

Includes: CEE, FXRU, RBL, RSX, TRF
by: Craig Pirrong

Russian manufacturing expanded at the most rapid rate in the last two years, with the April PMI registering 52.1 (with anything over 50 indicating growth). Yes, better than a sharp stick in the eye, but nobody should get too excited: Russia is still a manufacturing underperformer. The Global PMI was 57.8, the second highest level recorded in history. The U.S. PMI came in at a robust 60.4. Germany’s even better, at 61.5. China’s 55.7. India’s 57.2. Brazil was a comparative laggard, at 53.8, as was Japan at 53.5, both of which still lapped Russia.

Russia suffered one of the sharpest declines in manufacturing activity. It is also experiencing one of the weakest recoveries. Not exactly an “L”, but definitely not a “V”. More like a very shallow “U”.

A good deal of this is the result of one of the myriad consequences of the resource curse. Relatively strong oil prices have bolstered the ruble, and this has hampered the Russian manufacturing recovery.

Russia has been very aggressive at cutting interest rates to try to counter the ruble appreciation and force feed credit to businesses. Even with this stimulus, however, the manufacturing performance has been lackluster.

The worst appears to be over (unless, as is not outside of the realm of possibility, the metastasizing European fiscal crisis causes another global shock), mais les bons temps ne roule pas en la Russie.

When he first became president, Putin compared Russia’s standard of living with Portugal’s, and promised that Russia would catch up to the small Iberian country by 2015. Not going to happen. Unless, that is, the convergence is from above, with Portugal crashing to earth with the other once flying PIIGS, rather than from below, with Russia growing at a much faster rate.