The headline seasonally adjusted IHS Markit Russia Manufacturing PMI remained in the black, with manufacturing expanding to post 51.6 in December, broadly in line with the 51.7 posted in November.  

Although marginal, the latest data indicated a third successive monthly improvement in operating conditions across the sector, with the rate of expansion stronger than the long-run series average, Markit said.  

However, services continued to contract in December, albeit mildly. The seasonally adjusted IHS Markit Russia Services Business Activity Index registered 49.5 in December, which was an improvement on the 47.1 posted in November.  

The services result signalled a marginal contraction in business activity across the Russian service sector, but the fall in output was the slowest for three months and was reportedly driven by weak demand conditions as well as another monthly decrease in new business, Markit said.  

Combined, the two figures gave a result only just above the 50 no-change mark, posting a Russia Composite PMI Output Index of 50.2 in December, up from 48.4 in November.  

The result signalled a fractional upturn in private sector business activity in Russia in general. The increase in output was driven by a further expansion in manufacturing production, while the drag from falling service sector activity eased.

New business continued to contract as the year came to an end. The fall in new orders was the second-fastest in over a year as client demand was weighed down by coronavirus (COVID-19) restrictions (particularly in the service sector). New export orders slipped back into decline in December, although the rate of contraction was softer than those seen earlier in the year.

Sharper increases in cost burdens at manufacturers and service providers led the rate of input price inflation to accelerate to its fastest since May. That said, that pace of charge inflation was broadly in line with that seen in November. Although manufacturers registered an uptick in the rate of increase in selling prices, service providers saw softer rises.

Muted demand conditions led to sufficient capacity at private sector firms to process incoming new work. As a result, backlogs of work fell at their fastest pace since August and there was a renewed decline in employment centred on the service sector.

Finally, pandemic uncertainty and weak demand conditions weighed on business confidence at the end of 2021. The degree of optimism across the private sector slipped to its lowest since October 2020.  

Manufacturing  

Russian goods producers signalled a marginal improvement in the health of the sector at the end of 2021, according to Markit’s December PMI data.  

The rate of overall growth was broadly in line with that seen in November, amid steady expansions in output and new orders. Although domestic demand held up, new export orders returned to contraction.  

Meanwhile, a further deterioration in vendor performance amid logistical delays pushed input prices up and inflation remains a serious drag on growth for the economy. Cost burdens rose at their fastest pace for five months, with firms increasing their selling prices at a sharper rate in response, reports Markit.  

Reports of sufficient capacity to work through incoming new orders led to a slower upturn in workforce numbers and the steepest fall in work-in-hand for six months, reports Markit.

“Supporting a further upturn in the health of the sector was a fourth consecutive rise in output at Russian manufacturing firms in December. The pace of growth was modest overall and little changed from the rate seen in the previous survey period. Where a rise in production was noted, companies linked this to a sustained uptick in new orders,” Markit said in a press release.  

Contributing to greater production requirements was another rise in new orders at the end of 2021. Some firms stated that steady demand conditions helped drive up total sales, despite the rate of growth being historically subdued. In contrast to the trend for total new orders, foreign client demand fell for the sixth time in the last seven months.

Transportation and logistical delays, alongside supplier shortages, were also highlighted as having driven input prices up in December. The rate of cost inflation accelerated to its fastest in five months and was marked overall. Manufacturers continued to note the pass-through of higher costs to the client where possible, with the rate of charge inflation quickening to a four-month high.

Efforts to secure stocks of inputs amid stronger inflationary pressure led to a further uptick in purchasing activity in December. Goods producers registered only a marginal increase in input buying, albeit one of the fastest in 2021.

Services  

Russia’s services sector has been hurt by the renewed waves of the coronavirus that was sweeping the country at the end of the year, leading to a further business activity contraction in December.  

However, the decrease in output was only marginal, as the infection rate spiked and started to fall in December.  

Demand conditions remained subdued as domestic and foreign customers reduced their orders. Subsequently, pressure on capacity dwindled as backlogs of work fell at their sharpest pace for four months. Reflecting excess capacity, service providers cut their workforce numbers at the joint-steepest rate in 2021.  

Weak demand weighed on business confidence, which fell to its lowest since October 2020.

December data indicated a solid fall in new orders received by Russian service providers. The rate of decline was broadly in line with that seen in November, and the second-fastest since October 2020. Companies noted that lower client demand stemmed from rising virus cases and COVID-19 restrictions.

As with the manufacturers, service firms registered a renewed decrease in foreign client demand in December, as new export orders fell. Despite being only marginal, the pace of contraction was the steepest since January.

Employment fell for the third time in the last five months, and at the joint-sharpest pace in 2021. Some companies also noted that the decrease was linked to cost-cutting efforts amid soaring input prices.

The rate of input price inflation quickened for the fourth month running to its steepest since May. Alongside unfavourable exchange rates, firms stated that higher input prices were due to greater transportation and wage bills, and increased subcontractor charges.