Russian service providers posted an upturn in business activity during February 2023, showing the first increase in output five months and helping to put composite output PMI (services and manufacturing) into positive territory, according to the latest S&P Global Russia Services PMI 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 in 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 January 2023 services started to catch up with manufacturing, posting only a marginal contraction.

In February 2023 services’ recovery continued as the seasonally adjusted S&P Global Russia Services PMI Business Activity Index registered 53.1, up notably from 48.7 in January, and above the 50.0 no-change mark, signalling a solid increase in output across the Russian service sector. 

The bounce in Services PMI helped push the Composite PMI Output Index to 53.1 in February, up from 49.7 in January and indicating a “solid expansion in private sector business activity”, according to the report.

For service providers in February, the rise in business activity was linked to stronger client demand, the acquisition of new customers and greater interest from clients amid reduced uncertainty. 

“Russian service sector firms recorded the sharpest rise in new orders since August 2022, with the rate of expansion solid overall. Alongside the acquisition of new clients and uptick in customer demand, firms attributed greater new business to the release of new service lines,” according to S&P.

Further contraction in new export orders at Russian service providers was still weighing on the rise in total new business, and the companies noted that the fall in export business reflected a reduced customer base due to the impact of sanctions and greater competition for clients. 

“The rate of decline nevertheless eased to the slowest in the current 12-month sequence of observation,” the report noted.

Cost pressures across the Russian service sector softened, as input prices rose at their slowest rate since August 2021 in February.  Russian service providers also recorded optimism in the year-ahead outlook for activity for the second successive month in February. 

“The degree of confidence surged higher and was the strongest since July 2022, despite being slightly below the series average. Hopes of greater client demand and the introduction of new service lines supported positive expectations,” according to the S&P report.