Russian Factory Sector Sees Slight Improvement in April, PMI Shows

The Russian manufacturing sector recorded a marginal stabilization in April 2025, with the S&P Global Manufacturing Purchasing Managers’ Index (PMI) edging up to 48.7—marking the second consecutive month of contraction but at a slower pace. While the index remains below the 50 threshold separating contraction from expansion, the improvement signals a tentative respite from earlier sharp declines. However, persistent challenges—including tariff-driven disruptions, weakening demand, and employment cuts—underscore the fragility of this stabilization.

Key Metrics Highlight Mixed Signals

Output and New Orders: Manufacturing output contracted in April, but at the weakest pace since the downturn began, with the Production Index falling to 44.0%. New orders also declined, though at a slower rate, as domestic and foreign demand remained subdued. The New Orders Index dropped to 43.1%, the lowest since October 2024.

Employment: A renewed decline in employment ended a three-month streak of net job creation. Firms reduced headcounts through layoffs and hiring freezes, with the Employment Index dipping to 46.5%—a reflection of cautious cost management as production requirements eased.

Prices: Input cost inflation slowed to its weakest pace since February 2020, driven by favorable exchange rate movements against the U.S. dollar, which moderated price hikes for imported materials. Selling prices rose at the slowest rate since January 2023, easing pressure on profit margins.

Industry-Specific Dynamics

The sector’s performance was uneven, with 6 out of 18 industries reporting growth in April. Notably:
- Petroleum & Coal Products expanded due to sustained energy demand.
- Apparel, Leather & Allied Products saw growth as firms stockpiled materials ahead of tariff hikes.

However, key industries such as Transportation Equipment and Fabricated Metal Products faced steep declines, citing tariff-related cost pressures and reduced customer orders. The contraction in these sectors contributed to 41% of manufacturing GDP shrinking in April, with 18% of industries experiencing severe weakness (PMI ≤45%).

Trade and Tariff Headwinds

Exports and imports both contracted, with new export orders plummeting to 43.1%—the lowest since October 2024. Tariffs and geopolitical tensions disrupted global supply chains, with firms citing delayed border crossings and complex duty calculations. Input costs for raw materials such as steel and aluminum surged, driven by tariffs, pushing the Prices Index to 69.8%, the fastest inflation since June 2022.

Sentiment and Future Outlook

Despite ongoing challenges, manufacturer confidence improved to a four-month high in April. Firms expressed optimism about future demand recovery and planned investments in new product ranges and advertising. However, 49% of respondents reported rising raw material costs, signaling that cost pressures remain a critical concern.

Investment Implications

The April PMI suggests cautious optimism for sectors insulated from trade disruptions or benefiting from demand resilience:
1. Energy and Materials: Firms in Petroleum & Coal Products and Chemical Products are likely to outperform due to stable global energy demand.
2. Consumer Staples: Industries like Food, Beverage & Tobacco Products may offer relative stability amid weak discretionary spending.

Conversely, capital goods producers (e.g., Transportation Equipment) face heightened risks from trade barriers and reduced investment.

Conclusion

While the April PMI indicates a slight stabilization in Russia’s manufacturing sector, the data underscores a fragile recovery. The sector remains mired in contraction, driven by tariff-induced cost pressures, weak demand, and supply chain bottlenecks. Investors should prioritize firms with exposure to energy and essential materials, while remaining wary of industries dependent on global trade. With 41% of manufacturing GDP contracting and employment continuing to decline, the path to sustained growth hinges on resolving trade disputes and reigniting domestic demand.

The sector’s near-term outlook remains clouded, but the marginal improvement in April offers a glimmer of hope—if policymakers can address trade-related distortions and firms can adapt to rising costs. For now, caution and sector-specific focus are critical.