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Russia services sector grows at slowest rate in 13 months, PMI survey shows

A woman looks on as she waits at a Chinese restaurant in Moscow

(Reuters) - Growth across Russia's services sector slowed sharply in February, a business survey showed on Tuesday, as softening demand ate into new orders and firms struggled with logistical issues and strained workforces.

The S&P Global Purchasing Managers' Index (PMI) for Russian services dropped to 51.1 in February from 55.8 in January, staying above the 50 mark that separates expansion from contraction but registering its slowest growth in 13 months.

"Although firms, on balance, continued to note greater incoming new work, many highlighted a slowdown in new orders amid softening demand conditions," S&P Global said.

Russian services providers have contended with labour shortages in the past year. Challenges in retaining staff coupled with slower new order growth led some firms not to replace voluntary leavers, leading to the softest rate of job creation in seven months and a further rise in backlogs of work.

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Bright spots included easing inflationary pressures and a weaker rise in input costs, although those gains were largely offset by the weakest growth in new export orders since August.

Higher wages and increased material prices also led to a rise in cost burdens for firms.

"Some companies stated that higher prices for services had led to the loss of customers and smaller orders being placed," S&P Global said. "Anecdotal evidence suggested that some companies offered discounts to customers in a bid to drive new sales."

Despite the overall slowdown in growth, service sector firms remained confident about future output, with optimism driven by planned investment in expanding customer bases.

A sister survey released last week showed activity in Russia's manufacturing sector expanded at its fastest rate in seven years as robust domestic demand offset declining new export orders.

(Reporting by Lucy Papachristou; editing by Christina Fincher)