Manufacturing Index Shows Record Plunge in December

Russian manufacturing shrank at a record pace in December as slumping foreign and domestic demand led to production and jobs cuts, VTB Bank Europe said.

VTB's Purchasing Managers' Index contracted for a fifth month to 33.8, from 39.8 in November, the bank said Jan. 1. That is lower than at any time during the 1998 economic collapse, when the government dropped its support of the ruble and defaulted on $40 billion of domestic debt. A figure above 50 means growth, below 50 a contraction. The bank surveyed 300 purchasing executives.

"We'll probably find the economy contracted in the fourth quarter, the first of three consecutive quarters," Maxim Oreshkin, head of research at Rosbank, said in a telephone interview. "Manufacturing will lead this process, followed by lower retail consumption in the first quarter."

Russia was "inevitably" hit by the global turmoil, showing "negative trends" in the fourth quarter as the economy is globally integrated, Prime Minister Vladimir Putin said Dec. 29.

European manufacturing and services industries contracted in December at the fastest pace in at least a decade, while the U.S. economy shrank further as consumer spending fell.

"New business has declined throughout the fourth quarter," VTB said in the report. "The latest anecdotal evidence showed widespread financing difficulties for customers amid worsening domestic and export demand."

Production will probably reach a low in January as the 10-day federal holiday dampens demand and companies extend idle time and dismiss workers, Oreshkin said. The economy will probably continue to contract through the first half of the year, he said.

Employment in manufacturing fell at the fastest pace since the survey was started in September 1997, VTB said.