Russian service sector growth accelerated in July, picking up momentum from June’s recent low.
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Although weaker than the rates seen at the start of the year, it was solid overall.
Encouragingly, client demand increased with new business growing strongly.
Pressure on capacity remained muted, however, as employment and backlogs continued to contract.
Reflective of stronger demand conditions, output charges rose at the quickest rate for three months despite input price inflation softening.
The IHS Markit Russia Services Business Activity Index – a single-figure measure designed to track changes in total Russian services activity – posted 52.8 in July, up from 52.3 in June.
The latest expansion in business activity was solid despite remaining below the long-run series average.
Where a rise was reported, panellists linked this to greater new order growth and an increase in activity following the recent football World Cup.
The IHS Markit Russia Composite Output Index (covering both manufacturing and services) registered 51.7 in July, down from 52.0 in June.
The latest figure signalled the weakest rate of overall business activity growth since May 2016, reflecting a decline in manufacturing output.
Services new business received increased at a strong rate in July, and at a pace well above June’s recent low.
Panellists suggested that the rise stemmed from the acquisition of new clients and more substantial customer demand.
Although weaker than the long-run series average, the rate of growth was broadly in line with the trend for 2018 so far (54.4).
Unlike their service sector counterparts, manufacturers signalled a second monthly fall in new business.
Meanwhile, despite the upturn in services new business outstripping that of business activity, backlogs contracted for an eighth successive month.
The rate of decline eased but remained solid overall.
The level of outstanding business also fell at manufacturing firms, with the rate of contraction accelerating to the fastest since January 2016.
Services employment also fell in July.
Moreover, the rate of job shedding accelerated to the fastest since April 2016.
Anecdotal evidence stated that the latest decrease in workforce numbers was due to June’s dip in client demand and more efficient business processes.
Meanwhile, manufacturing firms indicated a seventh monthly decline in employment in the last nine survey periods.
On the price front, input costs in services continued to rise at a marked pace in July.
Although the rate of inflation softened to a four-month low, it was well above the series trend.
Panellists stated that the increase was largely due to higher fuel and labour costs.
Input cost inflation also softened among manufacturers, with the rate easing to a four-month low.
In line with a faster upturn in new business, prices charged by service providers rose at a quicker rate in July.
Moreover, the pace of inflation was the second-fastest since May 2017 and was solid overall.
Respondents commonly cited the passthrough of higher costs as the driving factor behind greater charges.
Weaker demand conditions in the manufacturing sector, however, led to a slower rise in output charges there.
Service sector business confidence improved for the second month running in July, with service sector firms reporting a strong degree of optimism towards the year-ahead outlook for output.
Positive sentiment was linked to hopes of further new business growth.
Conversely, goods producers reported the weakest degree of confidence in 2018 so far. ■