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Russia’s service sector continued to shrink in December but the pace of contraction slowed from the previous month, survey results from IHS Markit showed on Thursday.

The services Purchasing Managers’ Index rose to 49.5 from 47.1 in November. However, a reading below 50.0 indicates contraction.

The survey showed that there was a marginal fall in output in December. But demand conditions remained subdued as both domestic and foreign customers reduced their orders.

Reflecting excess capacity, service providers cut their workforce numbers at the joint-steepest rate in 2021. Further, weak demand weighed on business confidence which fell to the lowest since October 2020. At the same time, cost burdens rose markedly and at the fastest pace since May. Firms increased their selling prices at the softest rate since August.

Nonetheless, the private sector recovered at the end of the year driven by a further expansion in manufacturing output. The composite output index rose to 50.2 in December from 48.4 in November.

Headwinds facing Russian private sector firms will be significant going into 2022, as high inflation, growing COVID-19 cases and weak demand threaten the near-term outlook, Siân Jones, a senior economist at IHS Markit, said.

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