Russia’s service sector continued to expand in October, with the seasonally adjusted S&P Global Russia Services PMI Business Activity Index expanding to 53.6, but slowed from 55.4 the previous month.  (chart)

While this figure marked a slight decrease from September's reading, it still signifies a robust expansion in the output of Russian service providers, according to the S&P Global survey.

The services PMI follows on from the Russian manufacturing PMI for October, which posted a reading of 53.8. Anything above the no-change 50 mark is an expansion. Manufacturing in October was also slightly down from September's reading of 54.5.

Taken together, the S&P Global Russia Composite PMI Output Index, which combines data from the service and manufacturing sectors, registered 53.6 in October, down from September's figure of 54.7 -- still a solid expansion in business activity across the private sector, albeit at a slightly slower pace. Both the manufacturing and service sectors reported similar rates of output growth, although service providers showed a milder upturn.

Russia’s PMIs have now been growing uninterrupted for nine consecutive months, although the rate of increase has moderated recently, reaching its slowest pace since February. Strong client demand and consistent growth in new business were cited as significant contributors to the increased output.

While output growth eased to an eight-month low, it remained robust in historical terms, supported by a strong expansion in new business. Foreign client demand played a substantial role in driving total sales, with new export orders growing at the second-fastest pace on record.

Consequently, confidence in future output prospects reached its most positive level in four-and-a-half years. This optimism, coupled with increased workloads, led to a further round of hiring, with job creation accelerating from September.

Persistent inflationary pressures remains the main fly in the ointment, as both input costs and output charges continued to rise, albeit at a slower pace compared to previous months.

October saw a marked increase in new business, driven by the acquisition of new customers and favourable demand conditions for Russian service providers. Although the rate of new business expansion moderated for the second consecutive month, it remained above the long-run series average.

The rise in total new orders was bolstered by a significant increase in new international sales at the start of the fourth quarter, with new export orders growing at their second-fastest pace since data collection for this series began in September 2014.

Average cost burdens rose substantially in October, with higher wage bills and supplier price hikes cited as contributing factors. While the rate of cost inflation remained sharper than the series average, it did decrease for a second consecutive month.

Service providers continued to raise their selling prices at a marked pace, often in an attempt to pass on higher costs to customers. However, similar to input prices, the rate of charge inflation also eased, reaching its slowest pace since May.

Despite the challenges, robust demand conditions fostered improved outlooks among service providers for future output in October. This optimism reached its highest level since April 2019 and remained historically positive. Some firms expressed the belief that expanding client bases would drive business activity growth in the coming months.

Greater confidence in the outlook led to increased hiring, with firms expecting higher workloads. Employment was raised at a modest pace, faster than in September.

The pressure on capacity was evident as backlogs of work at service sector firms increased for the third consecutive month. However, the rate of expansion was the weakest in this sequence, as increased staffing helped alleviate the burden of growing unfinished business.