Russian economy sounds alarm

Bloomberg

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The Purchasing Managers’ Index contracted for a second consecutive month to 37.2 from 47.4 in October, VTB Bank Europe said yesterday in a statement. A reading of 50 is the dividing line between expansion and contraction. VTB surveyed 300 purchasing managers at service companies.

"The services sector used to be the strongest pillar of economic growth," said Vladimir Osakovsky, economist at UniCredit Bank in Moscow, in a note to investors. The numbers imply "considerable downside risks to broader real GDP growth."

Supermarkets and mobile phones retailers are slashing sales forecasts and firing staff, indicating consumers are set to rein in spending because of rising unemployment and wage arrears, Osakovsky said. Investors pulled $190 billion out of Russia since the start of August, BNP Paribas estimates, forcing the government to devise a $200 billion package to boost liquidity.

The contraction in service industries was "by far" the biggest since the survey began in October 2001, VTB said. "Activity, new business, employment and backlogs all registered much steeper contractions than in October."