Moscow: In July, Russia’s service sector activity returned to growth, as indicated by a recent business survey. Firms attributed this rebound to stronger demand, leading to increased new orders and a faster pace of job creation.
The S&P Global Purchasing Managers’ Index (PMI) for Russian services rose to 51.1 in July, surpassing the 50 mark that separates growth from contraction. This recovery follows a significant contraction in June, which saw the index fall to 47.6—its lowest level in 18 months. Prior to this downturn, the sector had experienced 15 consecutive months of expansion.
The rebound in the service sector contrasts with the manufacturing sector, which has relied heavily on domestic demand since Western capital and companies exited Russia following its invasion of Ukraine in February 2022. However, export orders in the service sector showed resilience and rebounded sharply in July after a period of contraction.
Despite these positive developments, Russian firms continue to face challenges, including a tight labor market and historically high cost burdens. According to S&P Global, “Anecdotal evidence linked the uptick in operating expenses to hikes in supplier costs and wage bills.”
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Firms remain optimistic about future output, driven by expectations of stronger demand and efforts to attract new customers. However, S&P Global noted that this optimism is at its lowest level in a year. “Positive sentiment was driven by hopes of stronger demand conditions and efforts to attract new customers,” the report stated.
Meanwhile, a related survey published last week revealed that activity in Russia’s manufacturing sector grew at its slowest pace in six months in July, hindered by a renewed decline in export orders due to weak demand in key markets.
