OREANDA-NEWS. August 06, 2013. Russian manufacturing firms said their operating conditions deteriorated in July, indicating the industry’s first contraction since August 2011.

The HSBC’s Purchasing Manager Index (PMI) calculated for Russia – a snapshot of operating conditions in the manufacturing economy – came down below the dividing line of 50.0 in July, standing at 49.2.

The July reading was the first negative showing since August 2011 and the lowest since December 2009.

On a PMI 100-point scale, numbers below 50 show a contraction. The index embraces such indicators as dynamics of new orders, industry output, employment, suppliers’ delivery times and stock of items purchased.

Weakness in new orders stood out as the main drag on Russian manufacturing, as they stopped expanding after 21 months of uninterrupted growth. The report revealed that the soft spot was the domestic market, as orders from abroad grew at their fastest clip since May 2012.

“These results appear negatively surprising after quite robust PMI survey results in the preceding month. Against such a sad backdrop, the improvement of New Export Orders to a 14-month high was the only bright spot in the survey. This is what makes the current situation positively different from those seen in the past, in 2008 and 1998: External demand is favorable for the resumption of growth this time,” said Alexander Morozov, Chief Economist for Russia and CIS at HSBC.

Looking at the recovery perspectives, Morozov said a rich harvest this year could boost the food industry. Coupled with easing inflation this should provide for income growth, better private consumption and increased output in related industries.

“That said, other Russian industries still appear vulnerable in the current environment, and the sustainability of export demand is not guaranteed, with signs of further growth moderation in China,”Morozov said.