Wednesday, September 3, 2014

3/9/2014: Russian Services & Composite PMIs: August 2014

Having covered Markit/HSBC PMI for Manufacturing for Russia here: lets now update data for Services PMI and Composite PMI.

Services side of the economy posted a month of very anaemic growth, registering 50.3 in August after the contraction of 49.7 in July. On the surface, August reading break 5 month streak of PMIs below 50.0, but in reality, 50.3 is weak. So weak, it is statistically indistinguishable from 50.0 as was 49.7 before it and 49.8 in June.

3mo average through August is now at 49.9 - making the above point on weakness. This stands above 3mo average through May which was 46.9. As a reminder, weaknesses in Russian services sectors began well before all the geopolitical mess in the Ukraine set on. Hence, 3mo average through August 2013 was 49.8. Services sectors did bounce back in 2013 in August as they did this time around, but the bounce back is weaker in 2014 than in 2013. The recovery accelerated somewhat through December 2013 and then slumped from January on. It remains to be seen if September heralds some revival in the sector fortunes.

Historical average for the series at 55.8, so we are way below where the average growth is supposed to be, which is, adjusting for structural issues and dynamics is probably around 52-53 mark.

With weaknesses in services and only marginally better manufacturing reading, Composite PMI still under performed in August. August Composite PMI fell slightly to 51.1 from 51.3 in July. Nonetheless, the indicator stayed above 50.0 line for the third consecutive month in a row. 3mo average through August is at 50.8, up on 3mo average through May which was at 47.5. As with Services, 3mo average currently is above 3mo average through same period of 2013 (50.0), but the increase y/y is relatively weak.

Again, the same pattern found in the Services sector trends repeats in the Composite indicator:

  • Overall economic weaknesses in the Russian economy were manifesting themselves back in June 2013 through September 2013, with Composite PMI running only slightly ahead of 50.0 mark. 
  • Acceleration in growth in October-December gave way to an outright contraction from January on. It is worth noting that the first sight of sanctions against Russia appears around mid-March 2014 by which time the economy has been posting Composite 2mo average PMI readings below 50.0 for 3 months. 
  • Sanctions acceleration in May coincided with lowest point in Composite PMI reading, although the low was statistically indistinguishable from all other contractionary readings, save for January. 
  • Since May sanctions (round 2) through August (covering also sanctions round 3 in July), Composite PMI managed to return to growth territory. 

The main points, summarised in the chart below are:

  1. Russian economy is still running well below capacity
  2. Return of PMIs to growth is fragile and weak - this is the first month of all three metrics reading above 50.0 since October 2013
  3. We need at least 2 more months of readings above 50 for all three metrics to call a reversal of the downward trend into an upward, and
  4. We need to see PMI reading around 52-53 fort Services and Manufacturing to spot any improvement in surplus capacity.

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