Russian Services And Composite PMI: Poor Start For 2016

by: Constantin Gurdgiev

Russian Services PMI for January 2016 came in with a hugely disappointing reading, falling to 47.1 from already poor 47.8 recorded in December. Per Markit:

This fall was driven by a solid contraction in new business levels, leading to another deterioration in backlogs of work. Meanwhile, job shedding persisted throughout the sector as firms turned pessimistic towards their future outlook for activity. Input prices continued to rise at a much quicker pace than average charges.

On a 3mo average basis, the index is now at 48.2, worse than already poor 49.4 average for the 3 months through October 2015, although, as expected - well above the abysmal 44.7 average for the 3mo period through January 2015. Just how bad is the current 3mo average and the latest monthly index reading? The historical average for Russian services PMI is at 55.0 - a full 7.9 points ahead of January reading.

The bad news is that the Services sector contraction has now accelerated (on both a monthly basis - for the second consecutive month) and on a 3mo basis too.

Again, per Markit: "Operating conditions in the sector remained challenging… Down from 47.8, the latest reading signaled the quickest decline in output for ten months."

Chart to illustrate the Services sector woes:

Meanwhile, Russia's Composite Output Index remained in contraction territory in January, posting a reading of 48.4, up on 47.8 in December 2015. The Composite index was helped to the upside by the Manufacturing PMI which was also in contractionary territory at 49.8, but above the horror show of Services PMI. January marked the second consecutive month that both Manufacturing and Services PMIs for Russia were below 50.0. The last time this happened was in December 2014-January 2015 and in February-March 2015 - in other words, at the dire depth of the current crisis.

Note: I covered Russian Manufacturing PMIs in detail here.

Per Markit,

the rate at which incoming new orders contracted [for Services providers] was the fastest since March 2015, with anecdotal evidence linking this to a lack of market demand. That said, Russian manufacturers reported a slight expansion in incoming new orders in January, having registered a decline in December.

Overall, Russia once again (for the second month in a row) ranks as the second lowest BRIC performer in terms of Composite PMI reading, ahead of only the complete basket case - Brazil. More on this to come, so stay tuned.