Russian Services Activity Continues to Grow at Modest Pace
Russian service sector growth remained in a low gear in August, according to HSBC PMI data compiled by Markit.
Alexander Morozov, Chief Economist (Russia and CIS) at HSBC, said: “Output growth in the Russian economy has become a notch faster, the August HSBC Russia Services and Composite PMI survey revealed. In annualized terms, the economy must be growing at 2.8% in August, other things being equal. This is the good news. The bad news is that other things are not equal this time.
“The crop drops must be deducting about 0.6pp from GDP growth in 3Q, we estimate. As a result, annualized GDP growth adjusted for the crop drops must have been just the minor 0.4% last month. This effectively means a temporary economic stagnation that may last until the final quarter of 2012 when seasonal factors reduce a share of the crop sector in GDP.”
Activity growth was held back by a further weak increase in new business, leading to a faster decline in
outstanding work. The HSBC Russia Services Business Activity Index remained above the no-change threshold for the twentyfourth month in succession in August and improved from July’s 22-month low of 52.0, to 52.6, but the latest figure still indicated a muted rate of expansion.
The equivalent Output Index for manufacturing was unchanged at 53.6. The Composite Output Index edged higher to 53.0, from 52.6 in July, indicative of moderate expansion.
The strength of services new business inflows continued to undermine total activity growth in August. Over the past three months new business growth has been weaker than at any time since September 2010, when the current sequence of expansion began.
Manufacturing new order growth slowed to a marginal pace, resulting in the weakest overall expansion across
both sectors for two years. Outstanding business in the Russian service sector declined for the twenty-first month in succession in August.
Moreover, the rate of contraction accelerated to the fastest since August 2010. Manufacturing backlogs also continued to fall at a solid pace.
Service sector companies and manufacturers in Russia were more cautious in their recruitment in August, reflecting the lacklustre rate of new business expansion. Employment rose at fractional rates in both sectors.
The rate of input price inflation in services accelerated for the fourth month running in August, to the highest since last November. Moreover, the rate of increase in input costs was in line with the survey’s long-run average. Firms reported higher costs for utilities, labour, fuel and outsourcing. Manufacturers faced the fastest rate of increase in ten months, but inflation in that sector remained relatively subdued.
The 12-month outlook for service sector activity brightened slightly in August, with around 40% of survey
respondents forecasting growth of activity. That said, business expectations remained much weaker than the
long-run survey average.
Morozov concluded: “More bad news is that growth of new orders has moderated to a very low level. The last time this happened was during the severe heatwaves in 2010. The gap between the Output Index and New Orders Indexes has widened and reached the size, seen before only during the 2008 crisis and in 1Q 2010.
“This tells us that the Russian economy seems standing at a crossroad: either a pick-up in demand will start supporting the current rate of output growth, or output growth will moderate in line with suppressed demand growth. We hope that an absence of excessive inventories this time will help Russian producers and increase the probability that the economy will choose the first road.”