Russia's manufacturing sector expanded at its fastest pace in 18 months in July as stronger domestic demand lifted output and new orders, although weakening exports, fuel shortages and deteriorating business confidence pointed to a fragile recovery (chart).

The seasonally adjusted S&P Global Russia Manufacturing Purchasing Managers' Index (PMI) rose to 50.7 in July from 50.3 in June, its highest reading since January 2025. A reading above 50 indicates expansion.

The survey found that total new orders increased for a second consecutive month, with growth accelerating to its fastest pace since May 2025 as manufacturers reported improving domestic demand and new customer wins. However, overseas markets remained weak, with export orders falling at the fastest rate since October 2022.

The stronger order book helped lift production for a third consecutive month, with output growing at its quickest pace since January 2025, although S&P Global described the overall expansion as only "marginal".

The data suggest that Russia's manufacturers continue to benefit from resilient domestic demand despite tighter monetary conditions, while international sales remain constrained by sanctions, trade disruptions and subdued global demand.

However, the survey also highlighted growing strains beneath the headline improvement.

Input cost inflation accelerated to its fastest pace since January 2026, with respondents citing fuel shortages, transport bottlenecks and higher supplier prices.

"Fuel shortages and subsequent transportation issues, alongside higher supplier prices pushed up costs," S&P Global said.

Manufacturers responded by raising selling prices at the second-fastest pace since January 2025, exceeded only by January 2026. The increase was also stronger than the survey's long-run average.

Supply chain pressures intensified during the month. Supplier delivery times lengthened by the greatest extent since February 2025 as logistics disruptions slowed deliveries, forcing firms to draw down inventories to meet customer demand. Pre-production inventories contracted for the first time in three months, while stocks of finished goods fell sharply for a seventh consecutive month.

Despite higher output, manufacturers remained cautious about the outlook.

Business confidence fell to its lowest level since May 2020, with respondents citing customer uncertainty and increasing competitive pressures. Although companies still expected production to rise over the coming year, optimism weakened markedly.

Employment also continued to decline as firms chose not to replace workers leaving voluntarily. Job losses nevertheless eased to their slowest pace in four months.

Manufacturers were also able to reduce outstanding work further, with backlogs falling for the 18th consecutive month, reflecting sufficient spare capacity to process incoming orders.

The survey adds to evidence that Russia's industrial economy remains supported primarily by domestic demand while facing persistent structural constraints. Previous months have seen manufacturers grapple with labour shortages, rising financing costs and increasing logistical challenges, even as state spending has continued to underpin activity in parts of the industrial sector.

The July PMI contrasts with many major manufacturing economies, where export demand remains subdued. While factory output has strengthened across several regions, including the eurozone and the UK, much of that growth has been driven by clearing existing order backlogs rather than a sustained recovery in demand.