Russia’s services sector contracted at a faster pace in May as weaker customer demand and financial strains among clients weighed on activity, according to S&P Global data, signalling continued pressure on the economy despite easing inflationary pressures in the sector. (chart)

The seasonally adjusted S&P Global Russia Services PMI Business Activity Index fell to 48.7 in May from 49.7 in April, remaining below the 50 no-change threshold. The reading marked the third consecutive monthly decline in output and the steepest fall since September 2025.

S&P Global said the deterioration reflected a sharper decline in new business as firms reported subdued demand, weaker purchasing power and financial difficulties among customers. New orders fell for a second consecutive month, with the pace of decline accelerating to an eight-month high.

The latest survey suggests domestic demand remains under pressure as Russia’s economy grapples with elevated borrowing costs and slowing growth. The Central Bank of Russia has maintained restrictive monetary policy in recent months in an effort to contain inflation, contributing to softer credit growth and weaker spending by businesses and households.

Business sentiment also deteriorated markedly. While services companies continued to expect output growth over the next 12 months, confidence fell to its lowest level since the current run of positive sentiment began in January 2023. Survey respondents cited concerns about customer liquidity and weak demand conditions.

Russia’s manufacturing sector also remained in contraction territory in May, although the pace of decline eased. The seasonally adjusted S&P Global Russia Manufacturing PMI rose to 48.8 from 48.1 in April, indicating the softest deterioration in operating conditions for three months. Manufacturers increased production to work through existing backlogs, even as new orders fell more sharply.

The broader private sector continued to shrink. The S&P Global Russia Composite PMI Output Index edged up to 49.2 in May from 49.1 in April, signalling a further marginal contraction in business activity. S&P Global said that “despite a renewed expansion in manufacturing production, a faster drop in services output dampened the overall performance”.

Within the services sector, inflation pressures moderated further. Firms reported that higher supplier, energy and wage costs continued to push up expenses, but the rate of input cost inflation slowed to its weakest level since December 2025 and remained below the long-run survey average.

Selling price inflation also eased for a fourth consecutive month from January’s VAT-related peak, reaching its lowest level of 2026 so far, although companies continued to pass higher costs on to customers.

Employment declined again as weaker demand and lower workloads prompted firms to reduce staffing levels. At the same time, unfinished work fell at the sharpest pace in four years, reflecting a combination of softer sales and reduced pressure on business capacity.