The seasonally adjusted S&P Global Russia Services PMI Business Activity Index registered 55.9 in April, down from March's two-and-a-half year high of 58.1, S&P Global said in a press release on May 4. (chart)
The latest upturn in output was nonetheless still sharp overall, and the second fastest since June 2021. Output increased due to a strong rise in new orders, driven by the domestic market.
Russia's manufacturing industries saw a moderate improvement in April 2023, with the business activity index falling slightly to 52.6 points compared with 53.2 points in March, S&P Global said in a press release on May 1.
Combined, the S&P Global Russia Composite PMI Output Index remained in the black at 55.1 in April, down slightly from March's recent high of 56.8.
“Despite the decline in the headline reading, the latest data signalled a strong expansion in business activity that was the second-fastest since May 2021. Softer upturns were seen at both manufacturers and service providers,” S&P said.
Russia’s economy has been doing surprisingly well on the back of heavy war-related spending. The Central Bank of Russia (CBR) just revised up its growth forecast from a range of -1% to +1% to a range of all growth between 0.5% and 2%. The Economics Ministry also improved its outlook to 1.2% for this year.
At the same time, the Ministry of Finance said that the large deficit booked in the first quarter is about to go into surplus after the tax rules on oil revenue were changed on April 1, which will provide more money to continue the heavy spending.
“Strong business activity growth was sustained across the Russian service sector during April, according to the latest PMI data,” S&P said. “A further solid expansion in new orders contributed to resurgent activity, with firms also stepping up their hiring in response to greater business requirements.”
Client demand growth was broadly focused on the domestic market amid a renewed contraction in new export orders as sanctions made it all but impossible to export to the traditional markets.
Firms were also more upbeat with regards to the outlook for output over the coming 12 months, as the degree of confidence rose to the highest since last July, according to S&P.
Business sentiment has been helped by collapsing inflation, which fell to only 3% in March. However, the CBR warned that the low level of inflation was partly a base effect and that inflation would rise again in the second half of this year. The Central Bank of Russia (CBR) decided to keep rates on hold at its April meeting at 7.5%.
S&P also reported that managers in its survey said input prices rose at a softer rate and the pace of cost inflation dipped further below the series average, but firms continued to hike selling prices, and at a faster rate.
“April data signalled a third successive monthly upturn in new business at service sector firms. New orders expanded in line with a sustained rise in client demand and increased customer referrals. Although the rate of growth softened from that seen in March, it was solid overall and the second sharpest since August 2022,” S&P said.
The main dark cloud in the sky is the ongoing collapse of export orders. The fall in new export orders was the thirteenth in the last 14 months, though it was only marginal overall.
Labour shortages are also making themselves felt. Greater client demand supported a further rise in workforce numbers during April. Service providers stated that higher employment was due to a need for increased capacity to process incoming new business. The rate of job creation accelerated to the fastest since June 2021 and was solid overall, according to S&P.
Service providers remained optimistic about the outlook for output over the coming 12 months in April. The degree of confidence ticked up to its highest since last July. Positive expectations reportedly stemmed from planned investment in facilities and service lines, as well as hopes of greater client demand and new customer acquisitions.