Russians Services PMI remains a strong 55.2 in April but slowed a little from March, optimism for the rest of the year high

Russians Services PMI remains a strong 55.2 in April but slowed a little from March, optimism for the rest of the year high
Russia's April service sector PMI continued to show strong growth, even is it softened a little from March, but businesses owners remain very optimistic about the rest of the year / bne IntelliNews
By bne IntelliNews May 6, 2021

The seasonally adjusted IHS Markit Russia Services Business Activity PMI index slowed a little in April to 55.2, down slightly from 55.8 in March, but remains robustly above the 50 no-change level as services bounce back as the end of the coronacrisis approaches.  

Although the rate of expansion slowed from March's recent high, it was still the second-fastest since August 2020, the bowl of last year’s crisis, Markit said in a note.  

The services PMI result comes in well ahead of the manufacturing PMI released on May 4 that registered 50.4 in April, down slightly from 51.1 in March, and means that manufacturing has returned to a status quo.  

The services result kept the Composite PMI Output Index well in the black, posting 54.0 in April, down slightly from 54.6 in March, to signal a solid upturn in private sector business activity, reports Markit. The rate of growth of the composite index was the second-fastest since August 2020 and was driven by the recovery in the services sector.  

Services suffered the most of all sectors during the lockdowns in 2020 as bars, restaurants, cafes, hairdressers and tourism companies were all effectively shuttered to prevent the spread of infections. Russia started a mass immunisation roll-out in December and the infection rates have begun to drop noticeably in recent months, although the epidemic is still in motion.  

April’s services PMI indicated a further strong expansion in business activity across the Russian service sector, albeit at a slightly softer pace. New business rose at its steepest rate since August 2020 amid more robust domestic and foreign client demand, reports Markit.  

Although pressure on capacity remained weak, the decline in backlogs of work softened, with firms expanding workforce numbers at the sharpest rate since February 2019.  

The uptick in business activity has already had an impact on Russia’s labour market and unemployment, which more than doubled from post-Soviet lows in 2019 to peak at 6.4% last August, has already fallen off to 5.5% as of March, about 1pp above the residual minimum. Markit said that the rise in employment was only modest overall, but the fastest since February 2019.

Optimism is rising amongst business owners after an annus horribilis in 2020 and Rosstat reports that Russian companies made their best profits in five years in March. The brightening of the mood is also visible in Rosstat’s business confidence survey which has improved dramatically and is currently at multi-year highs.

“Improved sentiment regarding future output was also recorded, with business expectations rising to the highest for almost two years,” Markit said in a note. “Business expectations across the service sector improved in April, as the degree of confidence in an increase in output over the coming year rose to the highest since May 2019.”

The fly in the ointment remains surging inflation, which took off at the start of the year, but seems to have peaked in March at 5.8% and fell to 5.5% in April. The inflation expectations of the population are also currently at four-year highs.   

Input costs continued to rise markedly in April. Anecdotal evidence widely attributed higher cost burdens to supplier price hikes, unfavourable exchange rate movements and greater fuel prices. The rate of cost inflation eased slightly to its slowest for three months, but was historically elevated.

Similarly, the pace of charge inflation softened slightly but stayed close to March’s 26-month high. Firms commonly reported that higher output prices were linked to efforts to partially pass on greater costs to clients.  

Business has also been weighed down by the ongoing fall in real incomes. Both real incomes and real disposable incomes were down in the first quarter of this year; however, part of that fall is due to soaring inflation, as real incomes are an inflation-adjusted number.   

But the main theme of the report is the noticeable pick-up of new business as companies report greater new order inflows and an uptick in customer demand.

“New business increased for the fourth month running in April. The rate of new order growth quickened to a strong pace that was the steepest since August 2020. Where a rise was reported, firms linked this to greater customer numbers and the release of some pent-up demand following the easing of lockdown restrictions,” said Markit.  

Service providers also registered back-to-back expansions in new export orders in April. The upturn in international sales accelerated to a solid pace that was the sharpest since May 2019.