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Financial News: Russia Service Sector Shrinks At Record Pace On

Russia Service Sector Shrinks At Record Pace On Covid-19 Outbreak

05/07/2020 - 09:04:00 (RTTNews)

(RTTNews) - Russia's service sector contracted at a record pace in April due to the restrictions imposed to curb the spread of coronavirus, survey data from IHS Markit showed on Thursday.

The services Purchasing Managers' Index fell to 12.2 in April from 37.1 in March. This was the steepest deterioration since the survey began in October 2001. Any score below 50 indicates contraction in the sector.

Output declined as client demand slump in April following the implementation of emergency public health measures. Some firms noted that their ability to operate decreased due to lockdown and quarantine procedures.

New business received fell steeply in April as customers cancelled or postpone orders due to lockdown. New orders declined the most in the survey history with foreign client demand contracting sharply.

New export orders decreased at the fastest pace since September 2014, amid an upswing of the Covid-19 pandemic.

Firms' expectation towards business activity over the next 12 months remained negative in April. The degree of confidence rose slightly from March, but was the second slowest in the survey history.

New business inflow lowered in April which led to greater spare capacity in the start of the second quarter. This led to the reduction in the employment level at a record pace.

The level of outstanding business declined at the sharpest pace in eighteen-and-a-half-year history.

On the price front, cost burden rose at a solid rate that was the second fastest since July last year. This was due to cost associated with the transition to work from home and negotiating logistical challenges during Covid-19 pandemic.

Output charges decreased at the fastest rate since October 2009, as an effort to retain client and attract new customers.

The composite output index declined to 13.9 in April from 39.5 in March due to contraction in the manufacturing and services sectors. This was the sharpest contraction since the survey began in October 2001.

"The impact of the COVID-19 outbreak had a hugely detrimental effect on the Russian services sector, as lockdowns and other emergency public health measures imposed operational challenges for service providers," Sian Jones, an economist at IHS Markit, said.

"In line with negative expectations among private sector firms, we currently forecast a 3.6% contraction in GDP in 2020," Jones added.

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