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. Last Updated: 07/27/2016

Foreign Debt Falls, Output Slump Eases

Russian companies and banks paid back nearly $50 billion of foreign debts in the final quarter of 2008, and the contraction gripping the country's manufacturing sector eased in March, data showed on Wednesday.

Rising oil prices, a more stable ruble and some signs of improvement in economic indicators suggest that the worst of the financial crisis could have passed for Russia, although economic growth is not expected to return until the final quarter of the year.

The VTB Capital Purchasing Managers' Index rose to a five-month high of 42.0 in March, although it remained well below the 50 mark that separates expansion from contraction.

"The outcome points to the eighth successive month of contraction, longer than that recorded during the 1998 financial crisis," said Dmitry Fedotkin, economist at VTB Capital.

"On a more positive note, the stocks of unsold goods declined, which, combined with a sluggish contraction of new business subindex, both suggest that the headline index may keep rising into the second quarter, albeit with no sharp recovery expected."

The PMI poses upside risks to forecasts that March industrial output would shrink 12.3 percent year on year after February's fall of 13.2 percent.

"Signs of a recovery in the worst-hit manufacturing sector also provide support to the ruble, suggesting no need for further devaluation in order to prop up economic activity," analysts at UniCredit said in a research note.

For the Russian economy, downside risks remain, not least from the large volumes of foreign currency corporate debt whose refinancing has been impeded by the credit crunch.

Banks' and companies' foreign debts fell by $47.4 billion in the final quarter of last year to $451.9 billion, Central Bank data showed, suggesting that the burden is slowly easing.

Troika estimated that planned maturities were about $70 billion, and thus over $20 billion was actually refinanced.

"It should be considered a huge success for domestic borrowers to have refinanced such a significant volume of external debt. If this trend continues, then the volume of cumulative external debt could decline to $70 billion to $90 billion by year-end," it said in a research note.

The manufacturing work force shed jobs for the 11th month in a row, the longest period of contraction in the survey's history, VTB said. "Firms reported that the redundancies resulted from lower workloads and the subsequent need to cut spare capacity," it said in the statement.

Severstal, Russia's biggest steelmaker, plans to cut as many as 9,500 jobs at its Russian units, chief executive Alexei Mordashov said on March 11. The metals industry as a whole could cut as many as 60,000 jobs this year, or 5 percent of the work force, as demand and prices slump, the Industry and Trade Ministry said.

The PMI is derived from indexes that measure changes in output, orders, employment, suppliers' delivery times and stocks, according to VTB.

(Reuters, Bloomberg)