Russia’s services PMI surges on the back of improving economic recovery

Russia’s services PMI surges on the back of improving economic recovery
Russia’s IHS Markit Russia Services Purchasing Managers Index (PMI) surged to 56.9 in October from 54.7 a month earlier
By bne IntelliNews November 6, 2018

The IHS Markit Russia Services Purchasing Managers Index (PMI) surged in October to 56.9 from 54.7 a month earlier on the back of improved economic momentum, Markit reported on November 6.

A stronger upturn in new business received by Russian service providers was generally linked to more robust customer demand and new client acquisitions. Moreover, the rate of growth quickened and was well above the long-run series average. The pace of expansion was the second-fastest in six years. Goods producers also recorded a quicker rise in new orders, with the rate of growth the second-fastest in 2018 so far.

The services result comes only a day after Market reported a return to growth in the manufacturing PMI that went back into the black printing a gain of 51.3, just ahead of the 50 no-change mark after four months of contraction. The combined PMI was lifted again by the services sector to 55.8, up from 53.5 a month earlier.

“The rate of expansion accelerated amid a quicker rise in new business, with both increasing the most since November 2017. Subsequently, employment levels rose for the first time since May and the contraction in outstanding business eased to the weakest for three months,” Markit said in a press release.

Russia’s economy has been recovering this year, but the growth has been anaemic and manufacturing in particular has been unable to gether any momentum. However, the service sector has been performing a lot better as the nature of the Russian economy continues to transform, moving away from its industrial base towards a more service-orientated economy. In related news the Central Bank of Russia (CBR) said in October that the rate of saving in August-September had fallen to its lowest level in 15 years as Russians change to more of a free spending mentality.

The black lining that came with the services PMI results is an associated pick up in the pace of inflation, which has been at record lows for most of this year. “Input price inflation quickened to a marked rate, while output charges increased at a solid pace,” Markit said. Inflation rose above the 3% mark in July and is expect to print 3.6% later this week when the latest results are published.

However, Russian businesspeople seem buoyed by the improving business environment. Markit reports their service provider panellists were “strongly optimistic”, with the level of confidence improving to its highest in over seven years.

There was also an increase in service sector employment for the first time since May – but only a fractional increase, says Markit. Within the employment results, the rate of factory job creation was the strongest since January 2017 and unemployment remains at post-Soviet record lows of 4.5% in September.

Business expectations among service providers towards the year ahead improved in October, with the degree of confidence increasing to the highest since July 2011. Goods producers remained strongly optimistic in October, with the degree of optimism at its second-highest since May 2015.

“Russian service sector business activity growth continued to build momentum in October. Notably, output was driven by stronger domestic demand, with total new business rising at the quickest pace in close to a year,” says Siân Jones, economist at IHS Markit. “Capacity pressures became evident, with employment entering growth territory for the first time since May. Meanwhile, rates of input cost and output price inflation accelerated, with former reading the second-fastest pace since March 2015. Encouragingly, demand conditions across the Russian economy strengthened in October. The IHS Markit Russia Composite Output Index signalled a sharp expansion that was the quickest in the year-to-date.”