Russia’s services sector expanded at its fastest rate since the beginning of the year in May, according to new Purchasing Managers’ Index (PMI) data from S&P Global. However, the rebound was accompanied by falling employment levels and the weakest business confidence since mid-2023.(chart)

The seasonally adjusted S&P Global Russia Services PMI Business Activity Index rose to 52.2 in May, up from 50.1 in April, signalling a solid increase in output. S&P Global said the uptick was supported by improved demand and stronger new order inflows.

“New business at Russian service providers increased at a solid pace in May… the rate of growth was the quickest in four months despite being slightly weaker than the series average,” S&P Global said in its release. Firms cited new customer acquisitions, client referrals, and a better sales environment as key drivers of growth.

Russia’s broader private sector also returned to expansion. The Composite PMI Output Index, which covers both manufacturing and services, rose to 51.4 in May from 49.8 in April, with services leading the upturn. However, the manufacturing sector’s recovery remained tentative, as the Manufacturing PMI posted a marginal increase to 50.2, just above the no-change threshold of 50.

“There were diverging trends in the survey’s price indicators,” S&P Global noted. “Although input costs rose at a weaker and historically subdued pace, output charges were raised at a quicker rate amid accommodative demand conditions.” Output prices grew at their fastest rate since January, reflecting efforts by service providers to pass on higher supplier, transportation and material costs to customers.

Despite the expansion in activity, Russian service firms reduced staffing in May, with headcount falling at the quickest pace since January 2023. “Companies attributed job shedding to the non-replacement of voluntary leavers,” S&P Global reported, adding that sufficient capacity allowed firms to manage increased workloads without additional hiring.

Business confidence among service providers also fell to its lowest level since July 2023. While companies remained optimistic about future output, “the degree of confidence slipped… amid concerns regarding the global sales environment and uncertainty,” S&P Global said.

Backlogs of work were broadly unchanged, ending a six-month period of accumulation. The data suggests that while demand conditions improved, firms were able to manage workloads without generating additional delays or pressure on resources.

“Some companies suggested that favourable exchange rates had softened pressure on cost burdens,” S&P Global added, noting that overall input cost inflation had eased to its slowest pace since July 2020.