Russian service sector grows at highest rate in 3 months in May - HSBC
MOSCOW. June 5. (Interfax) - The Russian service sector experienced its highest growth rates since February 2012 in May, after a significant slow-down the month before, according to HSBC research.
"Total output across manufacturing and services increased at the strongest rate in six months, led by services," it said in a report.
"The HSBC Russia Services Business Activity Index improved from April's 19-month low of 52.6, to 54.9, indicating the fastest expansion since February," it said.
"Growth remained weaker than the long-run survey average, however, and the trend for Q2 so far is slower than that registered for the first quarter," the report said.
"In line with the trend for services activity, the volume of new business received by Russian services providers increased at a sharper rate than in April. New order growth at manufacturers also accelerated, to the fastest since March 2011. Meanwhile, backlogs of work fell in both sectors in May. The rates of contraction were broadly similar," it said.
"Service sector employment in Russia rose in May, continuing the trend since November 2010. The rate of growth was moderate, and only slightly weaker than the long-run average. Manufacturers expanded workforces at a broadly similar rate during the month," the report said.
"Inflationary pressures remained weak in the context of both survey histories in May. The rate of input price inflation in services over the past two months has been the weakest since October 2010. Only 18% of monitored firms reported higher input prices than one month previously, mainly attributed to salaries, fuel and rents. Meanwhile, manufacturers' input prices increased at the second-slowest rate in nearly three years," it said.
"Only 18% of monitored firms reported higher input prices than one month previously, mainly attributed to salaries, fuel and rents. Meanwhile, manufacturers' input prices increased at the second-slowest rate in nearly three years," HSBC said.
"Pricing power remained weak in both manufacturing and services. Service providers increased their own charges, but the rate of inflation was weaker than the long-run trend. A similar trend was evident in manufacturing," it said.
"Service providers' expectations for activity over the next 12 months remained positive in May, but were the weakest since January. Around 46% of the survey panel expect growth, linked to domestic and international economic stability, new products and internal company developments," the report said.
"The HSBC Russia PMIs registered rebounds in economic activity in both manufacturing and services in May. This is a strong result against a backdrop of rather bleak official economic activity indicators and the sell-off on the Russian financial markets. It looks like Buranovskiye Babushki's Eurovision hit 'Party for Everybody' has passed all its energy to Russian businesses, helped by the summer weather that has arrived to Central Russia early this year. More seriously, we must be observing a positive effect of the transmission of increased oil & gas windfalls to the rest of the Russian economy, particularly consumer goods and services. Supporting this argument, hotels & restaurant services kept expanding at the fastest rate in May, pointing to a high level of consumer confidence and readiness to spend. All in all, it is not worth being too excited with the PMI numbers. Economic growth has just improved to an annualized rate of about 4%, breaking a deceleration trend. But oil prices have declined profoundly from their April peaks, so the party risks ending pretty soon," HSBC's Chief Economist for Russia and the CIS Alexander Morozov is quoted as saying in the report.
"What is good indeed in the PMI release is that price pressures remain well contained in both manufacturing and services. So, apart from the negative base effects that should start pushing headline CPI up since June, other risks to inflation remain low. Whether these base effects, together with the weaker ruble, give a rise to higher inflationary expectations and trigger a second round negative effect on inflation down the road, remains to be seen," he said.