Monday, October 5, 2015

5/10/15: Russia Services & Composite PMI: September 2015

Having covered Russian Manufacturing PMIs earlier here. Now, let’s take a look at the Services PMI and Composite PMI next.

In a positive sign of some stabilisation in the economy in September, Services PMI came in at moderate growth reading of 51.3 - the highest reading since July 2015 and up on 49.1 in August.

According to Markit, there was an increase in new orders, although excess capacity persisted in September. Job cuts continued as well, on foot of reductions in backlog of work.

September reading signals fourth instance of growth over the last 6 months, which, in the past did not translate in de-acceleration in the rate of economic contraction, so the latest figure should be considered with caution when interpreting growth in the Services sector as a sign of economic stabilisation. We need several months of continued above 50 readings on both Manufacturing and Services PMIs side to call an economic turnaround.

That said, given we are still awaiting for release of other BRIC data for Service, Russian Services sector performance in September is encouraging. China’s Services PMI came in at 50.5, below Russian PMI last month. The latest data for other BRIC economies shows Russia likely moving from third position in sector growth in August to second in September.

Boosted by Services improvement, Composite PMI for Russia posted a reading over 50 in September, coming in at 50.9 compared to 49.3 in August. This beats China’s 48 reading for September.

Note: I use 100 scale as opposed to market 50 scale.

As chart above shows, Russian Composite PMI has been on an upward trend since February 2015 trough and is now in growth territory over three months for the last 6 months period. Again, this warrants only cautious optimism, however, as we are yet to have consecutive above 100 readings in the index.

The key point is that we need to see both manufacturing and services PMIs reading above 50 to call normalisation in the economy. Last time we had such a reading was in September 2014, right before the full-blown currency crisis erupted to derail fragile stabilisation in the economy. 

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