Russian PMI Services indicator points to continued weak growth

September saw weak growth in Russia's services sector
The HSBC PMI Services survey data for September signaled continuing weak growth in the Russian services sector, coming in at 53.3

­The PMI, compiled by Markit, remained showed little underlying strength to recover marginally from the August slide from August’s slide from 56.9 to 53.2. A reading above 50 points to expansion with readings below pointing to contraction

The rate of expansion of businesses involved in services was the weakest for a year, but the September reading extending the current growth sequence to 13 months. Business expectations regarding expected levels of business activity in twelve months time improved marginally from the two-and-a-half-year low in August, but remained subdued with predominant outlook for continuds stagnation in business activity.

The sector has largely stalled throughout the third quarter hampering further growth in both manufacturing and adjusted sectors of the economy with marked turnaround from the sharp growth seen in Q1. Rising prices for fuel and utilities reflected rouble weakness and increasing the price of imported goods and putting pressure on Russian firms’ competitiveness.

Chief Economist (Russia and CIS) at HSBC, Alexander Morozov, said the economic risks are growing as industries fall into stagnation.

“The HSBC Russia Services and Composite PMI survey for September reflected growing downside risks for the economy. The services sector sustained a moderate level of economic expansion in September, while overall output growth in the economy edged down due to slower production growth in manufacturing. Overall growth of new orders in the economy has now been moderating for six consecutive months. Also, the decline in the PMI Outstanding Business Index speaks for slower demand growth in the service sector. This is a worrisome sign, pointing to a likely further slowdown in economic expansion in the coming months."

Morozov added that while some sectors production plans may support the growing domestic output, the business activity will remain depressed.

“Of course, ongoing strong growth in agriculture, which the HSBC PMI surveys do not capture, may keep overall GDP growth robust for a few more months. However, the rate of economic expansion in Russia would likely eventually decelerate to 2-2.5% or below on the annualized basis if presently very low output growth and lasting stagnation of new orders in manufacturing continues.”