Russian Exports and Inflation

From Bloomberg Today:

Russian Manufacturing Growth Accelerated in July, Survey Shows

By Maria Levitov

Aug. 1 (Bloomberg) -- Russian manufacturing expanded at a faster pace in July as industrial companies won more orders from domestic customers, a gauge of industrial production showed.

VTB Bank Europe's Manufacturing Purchasing Managers' Index rose to 53.4 from 53 in the previous month, the bank said in an e- mailed statement today. A figure above 50 indicates growth, below 50 a contraction. The bank surveyed 300 purchasing executives among Russian manufacturers.

``Growth witnessed across the Russian manufacturing sector at the beginning of 2007 was carried over into the beginning of the third quarter,'' Dmitri Fedotkin, an economist at VTB Bank Europe said in the statement.

The Russian government aims to boost shipbuilding, aviation and other technology-intensive industries by setting up state-run holding companies to foster research and development and double the size of the economy, the world's 10th biggest, by 2020.

Russia, the world's biggest energy exporter, is seeking to diversify the economy to become less dependent on revenue from oil and natural gas sales. ``Faster gains in new orders underpinned the latest acceleration in output growth,'' the statement said. ``The domestic market was again the main source of new order growth during the month.''

New export orders declined ``to the lowest in survey history, in part reflecting a decrease in the competitiveness of the locally produced goods,'' Fedotkin said. Goods made in Russia became less competitive, as the ruble continued to strengthen against the dollar, he said.

Ruble Rate

The ruble's real effective exchange rate increased 3.2 percent in the first six months of this year. The ruble may increase between 4 percent and 5 percent by the end of this year, Russian central bank Chairman Sergey Ignatiev told parliament in Moscow on July 4.

Inflation of manufacturers' input prices was ``slightly weaker'' in July than in the previous month, VTB said. The rate was still the second-highest rate in thirty-three months, it said.

The government aims to contain inflation at 8 percent this year, below last year's 9 percent rate. Russia has struggled to bring the pace of inflation down to western European levels as revenues from oil and gas sales flooded the country.

``The inflation rate has been a very serious problem in the past 18 years,'' said Andrei Sharonov, managing director of Moscow-based Troika Dialog brokerage and a former deputy economy minister, in an interview on July 24. It makes any company that operates in the Russian market with rubles ``less competitive.''

Monthly consumer-price growth probably accelerated to as much as 1.1 percent in July from 1 percent in the previous month, the Moscow-based Economy Ministry said in a report published on July 30. Inflation accelerated to an annual 8.5 percent in June from 7.8 percent in May.