Russian service sector performance improved in June, as business activity expanded at the fastest rate since March, according to the latest S&P Global report. (chart)

As followed by bne IntelliNews, despite the fallout from Russia's full-scale military invasion of Ukraine, the manufacturing sector ended 2022 with a historically strong expansion in output. Manufacturing PMI since January 2023 continued to trend in positive territory.

While throughout 2022 a wide gap persisted between the strong manufacturing and poor services PMI performance, in the beginning of 2023 services started to catch up with manufacturing, posting only a marginal contraction. And in June the Services PMI has even outperformed that of the manufacturing indicator.

In June the seasonally adjusted S&P Global Russia Services PMI Business Activity Index registered 56.8, up from 54.3 in May, and comfortably above the 50.0 no-change mark, indicating expansion.

As a result, the S&P Global Russia Composite PMI Output Index (both services and manufacturing) posted 55.8 in June, up from 54.4 in May. “The latest data signalled a strong upturn in private sector business activity, with the pace of increase accelerating to the fastest since March. Stronger growth was driven by a sharper uptick in services output, as the rise in manufacturing production eased,” S&P commented.

The service sector led the increase in new business, with manufacturers recording a softer rise in new orders. The latest data signalled a sharp rise in output at service providers, and one that was the second-fastest since May 2021. 

S&P notes that the pace of increase was steeper than the series average as firms noted that a stronger demand environment and greater customer interest drove the upturn in business activity.

For the services sector, the rise in output was supported by stronger demand conditions and greater customer interest, with both domestic and external demand environments “proved more accommodating”. 

However, same as for the manufacturing, service providers saw input costs and output charges rising at quicker rates. Business expenses increased in response to greater wage bills and rising supplier prices, with many firms passing higher costs through to customers.

“In line with a boost to client spending, service sector firms registered stronger expectations regarding the outlook for activity over the coming year. Positive sentiment partly reflected hopes that greater client referrals would translate into higher customer numbers,” S&P wrote, noting that after easing in May, the degree of confidence rebounded close to April's nine-month high.