Russia’s Services Sector Shows Growth in July

(Reuters) – Activity across Russia’s services sector returned to growth in July, attributed to stronger demand, increased new orders, and a faster job creation rate, according to a business survey released on Monday.

The S&P Global Purchasing Managers’ Index (PMI) for Russian services rose to 51.1 in July, surpassing the 50 mark that distinguishes growth from contraction. This followed a decline in June, which recorded a 47.6, marking the sector’s fastest contraction in 18 months.

Prior to the contractions in May and June, the sector had enjoyed 15 consecutive months of expansion.

The manufacturing sector’s activity primarily stemmed from domestic demand, particularly after Western capital and companies departed following Russia’s February 2022 invasion of Ukraine. However, the services sector saw a notable rebound in export orders in July, recovering sharply from previous contractions.

Russian firms have faced a tight labor market for nearly two years, reporting a historically elevated rise in costs in July, as indicated by S&P Global. “Anecdotal evidence linked the uptick in operating expenses to hikes in supplier costs and wage bills.”

Despite the challenges, companies expressed confidence in increased output over the coming year. “Positive sentiment was driven by hopes of stronger demand conditions and efforts to attract new customers,” stated S&P Global, although the level of optimism was noted to be the lowest in a year.

Additionally, a recent sister survey indicated that activity in the manufacturing sector grew at its slowest pace in six months during July, impacted by a renewed decline in export orders linked to weak demand in key export markets.