Russia’s Services PMI says strong as growth becomes broader based

Russia’s Services PMI says strong as growth becomes broader based
Russia’s Services PMI stayed at a strong 55.6 in November, but down slightly from October's 56.9
By bne IntelliNews December 5, 2018

Russia’s Services PMI index took its foot off the gas slightly in November, with the index falling from 56.9 in October to 55.6, but the services sector continues its robust growth and is well above the 50 no-change mark, IHS Markit said in a press release.

“A sharp upturn in new business across the service sector and an accelerated rise in new orders in the manufacturing sector led to the strongest increase in order book volumes since November 2017,” Markit reports.

The manufacturing PMI was also released a few days ago and also showed a positive result, with manufacturing expanding for the second month in a row to rise to 52.6 after poor growth in most of the first half of this year.

Together the service result kept the composite PMI index at a healthy 55, although the slowdown in services brought the overall result down slightly from 55.8 in October despite the improvement in the manufacturing index result.

“Russian service sector firms registered a sharp rise in business activity in November. The upturn in output was supported by a robust increase in new business, which was the second fastest in a year. Foreign demand also strengthened, with new export orders expanding at the quickest rate since July,” Markit said in a press release.

Russia’s economy has been recovering this year but growth is anaemic and industry and manufacturing in particularly have been struggling to build up any momentum. November results are encouraging as they show strong demand and a more balanced growth than earlier in this year.

“In response to the sustained upturn in new orders, firms increased their workforce numbers for the second successive month, reducing the strain on capacity and leading to a strong fall in backlogs,” Markit said. The rate of job creation was only marginal overall, but nonetheless the most marked since April.

One problem that has grown in significance this year is the reappearance of inflationary pressures, following post-Soviet lows earlier this year, partly driven by devaluation effects. Markit reports that inflationary pressures remained elevated, and rates of increase in both input prices and output charges were some of the fastest in the last three-and-a-half years.

New business received by Russian service providers grew at the second-strongest rate in a year in November, according to Markit’s panelists. The rise in new orders was commonly linked to new client acquisitions and increased contract wins. The expansion was robust despite dipping from October's recent peak, Markit reports.

“Increased client demand was broad-based in November, with exporters also registering a faster rise in new business from abroad. Growth picked up to a four-month high and was solid overall,” Market said.

Meanwhile, input price inflation remained marked, with greater cost burdens reportedly stemming from higher fuel prices and a stronger dollar exchange rate, which pushed up the price of imported purchases. Although slower than that seen in October, the rate of inflation was one of the most robust in the last three-and-a-half years. Consequently, service sector firms continued to increase output charges at a solid rate. Panelists stated that higher output prices reflected greater cost burdens.

“Finally, output expectations towards the coming 12 months moderated in November. Service providers expressed a robust degree of confidence that was broadly in line with the long-run series average. Optimism reportedly stemmed from a sustained rise in new business and increased advertising activity   Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data,” Markit said.

Although manufacturers expressed a greater degree of confidence towards future output, service providers were a little more cautious in their outlook for the coming year.

Commenting on the PMI data, Siân Jones, economist at IHS Markit said: “Russian service providers showed resilience in November, registering another sharp expansion in business activity. New order growth remained steep amid stronger domestic and foreign demand Despite a faster decline in backlogs, services firms continued to expand workforce numbers, with the rate of job creation reaching a seven-month high. Meanwhile, fuel and import costs continued to rise markedly. Nonetheless, buoyed by an improvement in client demand, service providers were encouraged to raise output charges solidly. As such, some strain was taken off profit margins. Following on from robust sentiment expressed in the recently released Russia Outlook survey towards the coming 12 months, private sector firms signalled another strong expansion in November. Moreover, composite new orders increased at the fastest pace for 12 months, amid strengthening demand in the manufacturing sector."