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. Last Updated: 07/27/2016

Services Sector Grows After 10 Months of Contraction

The country’s service sector returned to growth after 10 months of contraction in August, with both activity and new business rising for the first time in nearly a year, the VTB Capital Purchasing Managers Index showed Thursday.

The headline PMI climbed to 52.2 in August from 48.5 in July, moving above the 50 mark that separates expansion from contraction for the first time since September 2008.

An overall improvement in service-sector activity was slowed by employment, which continued to fall as a result of “a challenging market environment,” though the rate of job losses was the slowest in 10 months.

“Meanwhile, we expect the expansion of new orders will support the head count increase in the sector to match the robust growth of demand,” said Svetlana Aslanova, analyst at VTB.

Retailers including X5 Retail Group and Magnit have also seen sales recover after they moved into discount markets to target shoppers on tighter budgets.

“Consumer behavior has changed with incomes falling and a continuing threat of lay-offs,” said Dmitry Polevoi, an economist at KIT Finance. “People are increasingly looking to save and be more economical about spending.”

Russians responded to the economic crisis by putting 17 percent of their incomes into savings accounts last quarter, compared with 8.7 percent in the first three months of the year, the country’s Deposit Insurance Agency said.

Though a number of indicators point toward a recovery, growth may be little more than stagnant in 2010, said Neil Shearing, emerging-Europe economist at Capital Economics in London.

(Reuters, Bloomberg)