Russia's services PMI falls for second month due to impact of coronavirus

Russia's services PMI falls for second month due to impact of coronavirus
Russia's services PMI falls for second month due to impact of coronavirus
By bne IntelliNews December 3, 2021

The seasonally adjusted IHS Markit Russia Services Business Activity Index fell further in November to 47.1, down from 48.8 in October and the second consecutive monthly fall as the post-COVID bounce-back peters out. The decrease in output quickened to its fastest pace since October 2020 and is being driven by the fourth wave of the epidemic in Russia.  

The fall in the service PMI is in contrast to the manufacturing PMI that posted its strongest growth in six months to 51.7 in November, fractionally higher than 51.6 recorded in October, but the upturn was the fastest in six months.

Taken together, the composite PMI output index posted 48.4 in November, down from 49.5 in October, to signal a marginal decline in private sector output. Although manufacturers registered an expansion in production, service providers recorded a sharper fall in activity, bringing the overall score down. Any result below the 50 no-change mark is a contraction.  

“Russian service providers registered a solid contraction in business activity, according to November PMI data. The fall in output largely stemmed from a second successive decrease in new business, with client demand declining at a sharper pace. In contrast to the expansion seen in October, new export orders stagnated. Meanwhile, higher costs at suppliers and for fuel led to the steepest rise in input prices for six months. Weak demand conditions, however, meant firms reined in hikes in selling prices as the pace of charge inflation eased,” Markit said in a press release.  

Although firms remained optimistic of an increase in output over the coming year, the level of confidence dropped to its lowest since August amid concerns regarding the ongoing pandemic.  

Greater measures to contain the virus also affected new business, with new sales decreasing at a solid pace in November. The rate of contraction was the joint-fastest for 17 months.  

Weak customer demand extended to international clients as well. Whereas a rise in new business from abroad was seen in October, service providers recorded unchanged levels of foreign client demand in the latest survey period, Markit said.  

On the price front, the rate of input cost inflation quickened during November. Service providers signalled the fastest rise in input prices for six months, and one that was among the sharpest on record. Firms attributed the uptick in input prices to higher fuel, wage and supplier costs.

Although service sector firms registered a steeper rise in input costs, they recorded a softer increase in output charges midway through the fourth quarter. The pace of inflation was still sharp overall and quicker than the series average, however. Panellists continued to state that greater charges were due to the pass-through of higher costs to clients, reports Markit.

Meanwhile, employment was broadly unchanged during November, contrasting with a marginal contraction in October.

Business confidence at Russian service providers moderated during November. Although firms remained broadly upbeat regarding the outlook for output over the coming year, the level of optimism was the lowest since August. Where positive sentiment was noted, companies linked this to hopes of an improvement in demand conditions.