5 Oct 2010 13:09

Russian services industry picks up in Sept following summertime drop - HSBC

MOSCOW. Oct 5 (Interfax) - Business activity in Russia's services sector increased in September following a substantial drop during August, which had been the result of the anomalously hot summer, HSBC said in a press release.

The press release said: "The latest HSBC survey data covering the Russian services sector indicated that business conditions improved in September, following a heatwave-induced contraction in August. The headline figure for the survey, the seasonally adjusted Business Activity Index, rose above the no-change mark of 50.0, having fallen sharply to 47.0 in August. At 51.5, the Index signalled moderate expansion, but remained below its July level of 54.1, suggesting that momentum had not fully returned following the extreme weather conditions experienced in August.

"A composite Output Index tracking changes in total activity across manufacturing and services rose to 52.3, from 49.9 in August, signaling modest expansion.

"Incoming new business received by Russian service providers increased in September, having declined in August for the first time in six months. However, the rate of expansion was only marginal. Total new business across manufacturing and services rose at a modest pace, as manufacturing new order growth slowed in September.

"The relatively weak rise in new work in services contributed to a further fall in outstanding business in September. Manufacturing backlogs also declined during the month, and outstanding business across both sectors has now fallen continuously for five years.

"Service sector employment in Russia declined for the second month running in September, highlighting the relatively muted increase in business requirements. Manufacturing employment fell for the first time in three months, contributing to a second successive monthly decline in staffing across both sectors.

"Russian service providers' average input prices rose at the fastest rate in three months in September, linked to wage pressures. However, input price inflation remained weaker than the long-run survey average. Manufacturers continued to record sharper increases in average input prices than their counterparts in services.

"The pass-through of higher input costs by service providers remained limited in September. The rate of output price inflation in the sector was weak, and the slowest since May. In contrast, charges by manufacturers rose at the fastest rate since July 2008. Despite this, average prices charged across both sectors rose at a slower rate.

Alexander Morozov, chief economist for Russia and the CIS at HSBC, was quoted as saying: "Both HSBC Services PMI and HSBC composite PMI returned to the 'growth zone' in September. Yet, growth momentum is weak, lagging behind the levels seen just a few months ago. The economy must have grown by annualized 2-3% in September after stagnation in August, judged by past correlation between PMI and economic growth. There appears to be low immediate potential for further economic growth acceleration from the August trough, as follows from the relatively low composite new orders index."

He also said: "Seasonally-adjusted employment has been declining for two months in a row, with both manufactures and service providers shedding labour. Business expectations in services dropped to the end-recession level. So, service providers must be adjusting their initially strongly upbeat expectations down to the lower growth reality.

Despite weak economic growth, Inflation momentum in the economy is pretty strong, with the broad-based rise in cost pressures. Yet, at this point the pass-through of cost pressures to output prices is mostly seen in the manufacturing."