Russia’s manufacturing sector recorded its sharpest downturn in more than three years in June, as weak domestic and international demand triggered renewed declines in new orders and output, S&P Global reported on June 30. (chart)

The headline S&P Global Russia Manufacturing Purchasing Managers’ Index (PMI) fell to 47.5 in June from 50.2 in May, signalling a solid deterioration in operating conditions. This was the third contraction in four months and the steepest since March 2022.

“The overall downturn was the sharpest in over three years as new orders returned to decline and output contracted at a steeper rate,” S&P Global stated. “Firms entered retrenchment mode as employment, purchasing and stocks holdings were lowered, with weak demand conditions also dampening business confidence.”

New orders declined for the first time since March, with panellists attributing the fall to reduced customer purchasing power and muted client demand. Export sales also fell at the fastest pace since November 2022, weighed down by unfavourable exchange rates, which respondents said undermined competitiveness in key markets.

The downturn in demand led to a further fall in output, now in decline for the fourth consecutive month. The pace of contraction was the fastest recorded since March. Weaker demand also contributed to a sharp reduction in employment. “The fall in staffing levels was the second in the last three months, with the pace of job shedding the sharpest since April 2022,” S&P Global noted.

Manufacturers further cut their input buying in June, resulting in the steepest fall in purchasing activity since March 2022. Stocks of both inputs and finished goods declined at a quicker rate, as firms relied on inventories to meet subdued order volumes.

Input price inflation, meanwhile, eased to its lowest level in nearly five-and-a-half years. “The rate of increase was only modest and the weakest since the period immediately preceding pandemic lockdowns in February 2020,” S&P Global said, citing successful supplier negotiations that led to price discounts or freezes.

Selling prices continued to rise for the thirty-third consecutive month but at the slowest pace since November 2022, as firms sought to retain competitiveness in a softening market environment.

Despite the broad downturn, manufacturers remained cautiously optimistic about the outlook. Business confidence remained above the series average, buoyed by hopes for stronger demand and new product launches. However, S&P Global added that “the level of optimism ticked down to the lowest since October 2022 amid concerns regarding global economic uncertainty.”