3 Sep 2009 08:00

Russian service sector grows for first time in almost a year

MOSCOW. Sept 3 (Interfax) - Russia's service sector grew for the first time in almost a year in August, VTB Capital said in a research note.

Both activity and new business rose for the first time since last September, resulting in an overall improvement in the business climate. Employment continued to fall, but the rate of job shedding was at its slowest in ten months. Cost pressures intensified again, but remained subdued when compared against the long-run trend for the survey.

VTB Capital's headline seasonally adjusted Russian Services PMI is a single-figure composite indicator designed to give an overall measure of service sector performance. Readings above 50.0 signal improved business conditions compared to one month previously.

In August, the PMI rose by 3.7points, to 52.2, ending a ten-month sequence of decline in the service sector. That said, the latest figure still pointed to a relatively muted rate of expansion compared to the survey's long-run trend.

The Russian Services PMI is derived from a monthly survey of 300 purchasing executives in Russian services companies which has been conducted since October 2001. Readings above 50.0 signal an increase on the previous month while readings below 50.0 signal a contraction.

Underpinning the recovery in Russia's services economy in August was a rise in the volume of incoming new business. This brought to an end the severe sequence of contraction that started last October. Though modest overall, the expansion was broad-based, with four out of six sub-sectors posting gains during the month.

Though weak compared to the long-run trend of the survey, the increase in new workloads in August was sufficient to generate overall growth of business activity in the service sector. The rise in services activity in Russia wasthe first in eleven months, albeit at a moderate pace. Firms continued to cut outstanding workloads as capacity pressures remained muted. However, the latest decline in incomplete contracts was the slowest in eleven months.

"In August, the Russian services sector expanded for the first time since September 2008. The Russian Services PMI posted above the no-change mark at 52.2 on the back of an increase in new orders and business activity. This recovery slowed down the growth of unemployment. Meanwhile, we expect the expansion of new orders will support the headcount increase in the sector to match the robust growth of demand. Prices charged and input price inflation accelerated in August; however, both indicators are still below their long-run averages. In the meantime, companies' profitability improved, mainly as a result of new incoming business," said Svetlana Aslanova, analyst at VTB Capital.