Service industries expansion weakens

Moscow: Russian service industries from banks to food retailers expanded in February at the weakest pace since July as new business fell for a second month and companies fired staff.

The Purchasing Managers' Index fell to 51 last month from 51.9 in January, VTB Capital said in an e-mailed statement. The index, which is based on a survey of about 300 purchasing managers, shows expansion with a reading above 50.

"Total business activity rose, but new business fell for the second month running," the VTB statement said. "This resulted in a sharp drop in backlogs and the fastest workforce contraction since last October."

Declining bank lending to consumers accelerated and corporate loan books slid for a second month in January. Service industries' expansion has also been constricted by unemployment, which climbed to 9.2 per cent in January, almost matching a credit crisis peak of 9.4 per cent a year ago. Employment in the sector has fallen every month since October 2008.

Retail sales rise

While retail sales rose an annual 0.3 per cent in January, the first increase in a year, the recovery remains fragile as companies trim costs and banks' balance sheets are weighed down by delinquent debt, Finance Minister Alexei Kudrin said on February 25. The economy is set to expand 3.2 per cent this year, he said.

Retailers including Magnit, Russia's second-largest food retailer, are counting on higher sales. Magnit may increase sales by more than 20 per cent as it adds stores and cuts prices, Chief Executive Officer Sergei Galitsky said.

Growth of business activity among service industries was sustained largely because of companies' clearing outstanding business, the VTB statement said.

Energy and utility costs provided a "modest" inflationary boost, prompting average input prices to rise at the slowest pace in three months, VTB said.

Limitations proposed

Russia's central bank supports limitations on bonuses paid to bankers, First Deputy Chairman Alexei Ulyukayev said.

"We are not proposing limiting bonuses directly or levying a tax on them," Ulyukayev said in an interview published in Izvestia yesterday. His comments were confirmed by a bank official. "If the size of bank capital is within a certain band, restrictions can be placed on the right to divide profits. The higher the capital adequacy, the smaller are the restrictions."

Banks are under scrutiny from governments worldwide to reduce compensation amid public anger about trillions of taxpayer dollars used to bail out lenders during the credit crisis. In December, the UK introduced a one-time 50 per cent levy on certain discretionary bank bonuses.