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. Last Updated: 07/27/2016

Manufacturing Sector Rebounds

Manufacturing returned to growth in December, the Moscow Narodny Bank purchasing managers' index, or PMI, showed, after the previous month's index showed the sector shrinking for the first time since 1998.

The Economic Development and Trade Ministry has warned that Russia's boom growth rates could slump without radical reforms and analysts say action is needed to reassure investors that Russia is a reliable place to do business.

The index's headline number ticked up to 51.1 from 49.8 in November -- back above the key 50 mark separating expansion from contraction. This was the first rise in the index since June.

Output growth recovered to 52.2 after teetering on the brink of contraction at 50.6 in November. The new orders index also registered an upturn to 52.6 from 51.5.

"The improvement in this month's headline index marks a welcome reversal of five consecutive monthly declines and, more importantly, a return to positive growth across Russia's manufacturing sector," said MNB economist Paul Timmons.

"Indeed, the recovery was led by solid growth in new orders and output and, at the same time, export demand improved and backlogs of outstanding work were further reduced."

However, firms complained it was hard getting their hands on cash -- a stubborn problem in a country where many of the 1,000-plus banks are pocket organizations attached to powerful business groups.

Tapping local debt markets is an alternative way for larger companies to raise money -- but this is not a viable option for small- and medium-sized firms.

"This 'credit availability' issue continues to raise doubts regarding the sustainability of Russia's current growth path and serves to highlight the urgent need to push forward with banking sector reform and establish a functioning system of credit intermediation across the country," Timmons said.

Although input price inflation was at its weakest since August, costs still rose sharply, with fuel, oil products and metals the chief culprits. Firms also reported that a strong euro was increasing the cost of imported goods.

The latest official data put factory gate inflation year-on-year in November at 28.6 percent.

Russia, the world's No. 2 oil exporter, has chalked up impressive growth rates thanks to its booming energy sector -- 7.3 percent in 2003. But this is not set to last.

President Vladimir Putin has said he expects growth of 6.8 percent in 2004 and the budget allows for 6.3 percent in 2005.