Russian manufacturing expands most since 2008

Moscow: Russian manufacturing expanded at the fastest pace since April 2008 last month as increasing domestic demand helped producers overcome record heat and the worst drought in half a century, HSBC Holdings said.

The Purchasing Managers' Index climbed for an eighth month in August, reaching 52.9 from 52.7 in July, HSBC said in a report yesterday, citing data compiled by Markit Economics. The survey-based index indicates a contraction when it is below 50 and growth with a figure above 50.

Russia's worst drought in at least 50 years will cost the economy as much as 0.8 percentage points of growth this year, though gross domestic product will still expand 4 per cent, according to Deputy Economy Minister Andrei Klepach.

"After adjusting for seasonal factors, the rate of growth eased to a three-month low, partly reflecting the effect of the recent heat wave," HSBC said.

"Overall, the manufacturing sector keeps shifting from export-led growth to domestic demand- driven growth."

Domestic demand is strong and is likely to boost retail sales and industrial output, fueling economic growth of 4.2 per cent in 2011, up from the previous estimate of 3.4 per cent, Klepach said August 30.

The drought will also fuel inflation, which is set to reach 7 per cent to 8 per cent this year, more than previously estimated, Klepach said.

Consumer prices will rise 6 per cent to 7 per cent next year, according to the Economy Ministry.

Inflationary pressures

"Inflationary pressures have intensified further in August," with firms reporting rising costs of metals, oil products and food, Alexander Morozov, HSBC's chief economist in Russia, said in the statement.

"The recent acceleration of consumer price growth appears likely to be sustained."