Russia’s service sector activity grows for fourth straight month in May

The service sector in Russia recorded additional growth in new work and business activity in May, continuing with the upward trend set in the beginning of 2016. This has resulted in an upbeat sentiment for the sector’s outlook.

The headline seasonally adjusted Markit Russia Services Business Activity Index continued to stay above the 50 threshold at 51.8 in May. This was the fourth straight rise. But the pace of growth slowed from the April’s three-year high level. The Composite Output Index of Russia slightly declined in May to 51.2 from April’s 51.3. Additional rise in new work received in May benefitted service providers. Also, new business volumes grew for the fourth consecutive month. But the new order growth rate slowed from April’s level, consistent with the trend in headline activity, noted Markit.

Service sector firms attributed the new business inflow to the rise in demand from export and domestic clients. This is in contrast to the situation observed at manufacturers where a sharp decline in new work from abroad led to a slight fall in total new orders.

According to the sector data, out of six service categories, four of them, namely Post & Telecommunications, Financial Intermediation, Transport & Storage and Hotels & Restaurants, recorded growth in new work received and business activity in May. On the contrary, Renting & Business Activities and other services firms recorded declines in new business inflows and a drop in output.

Meanwhile, employment in the services sector dropped for the 27th consecutive month. But the pace of job cutting slowed to a nine month low on a sign of recovery in business activity. This was also seen in t he manufacturing sector that recorded rise in employment for the first time in nearly three years. Both the service providers and manufacturers’ data shows that the overall pace of decline in staffing levels in private sector decelerated to a 21-month low in May, noted Markit.

Meanwhile, output charges and input costs at service providers continue to increase in May. But the pace of input price inflation slowed to an eleven month low and continued to be lower than the long-run survey average. This was enough to counter a sharper rise in manufacturing purchase price inflation rate. This indicates that the combined rate of rise in costs throughout both the sectors slowed to a six-month low.

Service providers in Russia continued to keep an upbeat view in May. More than 27% of firms project activity in business to rise in the coming year, as compared with the 18% of companies projecting a decline. Optimistic view shows an expected rebound in the conditions of economic growth, planned marketing activity and increasing demand levels.