The service sector supported the recovery of the Russian economy

In February 2021, the output of nine basic sectors of the Russian economy actually reached the level of March 2020, having decreased by 0.4% compared to January due to the manufacturing industry, construction and transport, according to the HSE. In March, industrial activity, according to leading indicators, did not grow. At the same time, the growth rate of output in the service sector accelerated sharply due to both internal and external demand, as analysts from Markit agency record.

In February, the output index of basic industries reached 99.3% of the level of March 2020, actually recovering from the crisis. In February, the level of March 2020 was exceeded in five out of nine basic economic activities. The backlog persisted, including in mining (primarily due to restrictions within OPEC+), construction, retail trade, transportation of goods by transport and in consumer industries (primarily related to the provision of services).

The slowdown in industrial recovery in February-March (according to leading indicators of Rosstat, Gaidar Institute, CMASF and PMI) made experts say that the economy, having completed recovery in the first quarter of 2021, returned to stagnation. Meanwhile, according to the Markit agency, the service sector recorded the highest growth in business activity in the last seven months in March – against the background of the fact that domestic demand was growing at the fastest pace since August 2020, and external demand was growing since October 2019. The revival of business activity in services in March was accompanied by an increase in employment in the sector and was so significant that it supported the growth of the composite Markit index against the background of a slowdown in the industry.

Indirect evidence of increased household demand in March is the continued rapid increase in consumer imports and increased consumer confidence. However, the consumer confidence index in the first quarter of 2021 compared to the second quarter of 2020, having increased by five percentage points, to minus 21%, only slightly exceeded the level of the third quarter of the previous year. At the same time, IHS Markit economist Shian Jones notes that service providers recorded a noticeable increase in costs at the end of the first quarter – such a surge has not been observed since the VAT hike in early 2019. "Business expectations in general remained optimistic, although confidence among both manufacturers and service providers dropped slightly. Optimism continued to come from hopes for a further economic recovery in 2021," experts at Markit conclude.

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