The seasonally adjusted IHS Markit Russia Services Business Activity Index bounced back in January and was comfortably in the black, posting 52.7 in January, up markedly from 48.0 in December, Markit said in a press release on February 3.

That follows on from a positive result for the manufacturing PMI released a few days earlier. The IHS Markit Russia Manufacturing PMI posted its first gain since August 2020, rising to 50.9 in January, up from 49.7 in the last month of 2020, the first gain in five months. Any result above the 50 no-change market is an expansion of business activity.

Taken together, the positive services and manufacturing PMIs also lifted the composite PMI to 52.3 in January, up from the 48.3 in December that signalled a modest increase in private sector business activity, Markit said.

“The moderate increase in the [service] business activity brought to an end a three-month sequence of contraction. Anecdotal evidence suggested that the upturn was linked to greater client demand and higher new sales,” Markit reports.

Rosstat reported this week that Russia’s economy ended 2020 with a 3.1% contraction, a far milder result than had been anticipated. The official forecast from the Economics Ministry was for a 3.9% contraction and the Central Bank of Russia (CBR) was predicting anything from -4% to -6%. It appears that the decision to forgo a second lockdown after the summer made the difference, coupled with the fact that the services sector in Russia, which is particularly prone to pandemics, remains under-developed and so was hurt less than in more developed countries in the rest of Europe.

Russia’s economy is expected to recover this year, with growth returning in the second quarter, expanding by 3.1%-3.3% this year according to the various forecasts.

The positive PMI results in all three categories are an early indicator that the economy is already starting to recover from its annus horribilis.

“January PMI data signalled a return to growth in business activity across the Russian service sector. The upturn in output was supported by a renewed expansion in new business,” Markit said. “New export orders, however, fell once again, albeit at the slowest rate since last August. Meanwhile, the first rise in backlogs of work since November 2017 and the strongest degree of business confidence since October 2019 saw employment move closer to stabilisation. At the same time, the rate of input price inflation eased, leading to a slower increase in output charges.”

As the new year starts, demand has begun to recover, although exports remain down, as demand elsewhere is struggling to take off.

And Markit reports good news on inflation which increased sharply in 2020 to end the year at close to 5% – above the CBR’s target rate of 4% – on the back of rising food prices. Indeed, food prices have risen so sharply the government has asked food producers to artificially cap price rises for the meantime. However, Markit reports that upward price pressure is now starting to ease.

“The rate of cost inflation eased for the second successive month in January and was notably slower than November's recent high. Nonetheless, the pace of increase was solid overall, with Russian service providers attributing the rise to greater fuel, utility and supplier costs. Some companies also mentioned that unfavourable exchange rate movements had driven up the price of imported goods,” Markit said. “As a result of a slower rise in cost burdens, firms increased their output charges at a more subdued pace in January. Although many noted the partial pass-through of higher input prices to clients, the pace of charge inflation was the softest since July 2020 and only marginal overall.”

The level of optimism amongst businessmen surveyed by Markit was the highest since October 2019, as firms were buoyed by hopes of an end to the coronavirus (COVID-19) pandemic and social-distancing measures. Companies are also hoping for a stronger rise in new business once restrictions are lifted, Markit reports.

Unemployment also soared in 2020 to around 6% from post-Soviet record lows of about 2.4% in 2019, but Markit reports that both service companies and manufacturers are starting to hire again.

“Employment [in services] fell only fractionally in January. The decrease was the slowest in the current five-month sequence of job shedding, as pressure on capacity built. Backlogs of work rose for the first time since November 2017, following a renewed rise in new order inflows,” Markit said.