Russian services sector stabilises in August as employment rises, PMI shows

Russia's services sector stabilized in August, with the S&P Global PMI rising to 50.0, marking a halt to two months of contraction. This stabilization occurred despite continued, albeit slower, declines in new orders, as employment grew at its fastest pace since February, signaling firms' anticipation of future demand. While input cost pressures eased significantly to a five-year low, businesses accelerated output charge inflation; however, overall business confidence dipped, and the manufacturing sector continued its third consecutive month of contraction, presenting a mixed economic picture.

Analysis

Russia's services sector activity stabilized in August, with the S&P Global Services PMI registering at the neutral 50.0 mark, halting a two-month period of contraction. This stabilization occurred despite continued weakness in demand, as new orders declined again, albeit at a slower pace than in July, with firms citing challenging financial conditions and customer hesitancy. A notable positive signal was the growth in employment, which expanded at the fastest rate since February as companies staffed up in anticipation of future sales. On the inflation front, the data presents a mixed picture: input cost pressures eased significantly, rising at the slowest rate in over five years due to favorable exchange rate movements, yet firms accelerated the pace of output charge inflation. This stabilization in services contrasts with a sister survey showing Russia's manufacturing sector contracted for a third consecutive month, while overall business confidence in the services sector dipped to its second-lowest level since July 2023, collectively painting a fragile and uneven economic picture.

Key Decisions for Investors

• Investors should view the stabilization in Russia's services sector with caution, as declining new orders and weak business confidence suggest underlying demand remains fragile despite the headline PMI improvement.
• The divergence between a stabilizing services sector and a contracting manufacturing sector warrants a selective approach; exposure to service-oriented firms may be preferable to industrials, which face more significant headwinds.
• Monitor corporate margins and sales volumes closely, as the combination of easing input costs and accelerated output charge inflation creates uncertainty around the sustainability of consumer demand and profitability.