Russian service providers recorded a strong start to 2024, as business activity grew sharply, according to the latest S&P Global service PMI, posting a robust seasonally adjusted 55.8 in January, down slightly from 56.2 in December.  (chart)

The latest reading is well ahead of the 50 no-change mark and signalled a sharp upturn in output at Russian service providers, and one that was the second-fastest since August 2023. Greater output was linked by the panellists to a sustained rise in new orders and strong customer demand.

Russia’s economy is almost booming on the back of heavy state spending on the war and growing demand for goods and services. Greater output was driven by a further steep rise in new orders as demand conditions remained robust, with new business from abroad also ticking higher. Subsequently, backlogs of work rose again and firms expanded their staffing numbers in a bid to grow capacity and work through outstanding business. Companies were buoyed by the sustained upturn in new business, as output expectations climbed to the strongest since April 2019.

Meanwhile, cost burdens faced by service providers rose markedly as inflation remains high, despite the pace of inflation easing to a seven-month low of 7.2% in January, according to annualised weekly numbers. In response, firms hiked their selling prices at the quickest pace since October 2023.

The slight slowdown was also visible in the S&P Global Russia Manufacturing PMI, which fell to 52.4 points in January from 54.6 points in the previous month. (chart) "Despite stronger business confidence, firms left employment broadly unchanged on the month in response to falling backlogs of work," the report said.

Taken together the S&P Global Russia Composite PMI Output Index came in at 55.1 in January, down slightly from 55.7 in December, to signal a strong upturn in business activity at the start of 2024. Moreover, the pace of growth was the second-fastest since last August despite softer output expansions at both manufacturers and service providers.

Amid a further increase in backlogs of work, firms expanded their staffing numbers again in January. The rise was driven entirely by the service sector, however, as manufacturers saw broadly unchanged employment in the month following a third successive monthly drop in work-in-hand.

Successful advertising campaigns and a further improvement in demand conditions reportedly drove the latest rise in new business at service providers. January data signalled a sharp increase in new orders, and a rate of growth that was little changed from that seen in December and steeper than the historical series average.

Strengthening demand conditions were not confined to the domestic market, as new export orders rose for the ninth month running. Although new business from abroad increased at a solid pace, the rate of growth eased notably from December and was the slowest since last August amid challenging economic conditions in some key export markets.

Meanwhile, selling prices at service sector firms increased at a faster pace at the start of 2024. Companies sought to take advantage of an accommodative demand environment and pass through higher costs to customers. The rate of charge inflation was historically elevated and the steepest for three months.

Higher input prices stemmed from greater electricity and supplier costs, alongside reports of increased wage bills. The rate of input price inflation remained quicker than the series average, despite slowing to the weakest since June 2023.

A sustained uptick in new business buoyed Russian service sector firms and contributed to an improvement in confidence regarding the year-ahead outlook for output.

Companies also stated that optimism was underpinned by growth in their customer bases. The level of positive sentiment strengthened notably to the highest since April 2019.

Service providers expanded their staffing numbers for the sixth consecutive month in January, as greater new orders placed pressure on capacity. The rate of job creation was solid overall, despite easing slightly.

Moreover, service sector firms continued to record growth in backlogs of work at the start of the year. That said, the level of outstanding business rose at a marginal pace that was the slowest for three months.