Russia’s manufacturing sector slipped back into contraction in August as weaker demand hit new orders and production, while inflationary pressures intensified and manufacturers continued to cut jobs, according to the latest S&P Global purchasing managers’ survey. (chart) 

The seasonally adjusted S&P Global Russia Manufacturing Purchasing Managers’ Index (PMI) fell to 48.8 in August from 50.7 in July, dropping below the 50-point threshold that separates expansion from contraction.

The reading marked the first deterioration in operating conditions for three months, although S&P Global said the decline was marginal overall. It nevertheless contrasted with the survey’s long-run average, which points to modest growth in the sector.

The deterioration was driven partly by a renewed fall in new orders, as manufacturers reported weak client demand and reduced liquidity among customers.

Export conditions were particularly weak. Russian goods producers recorded the second-fastest decline in new export orders since September last year.

The drop in demand fed through into production, which fell for the first time since April. The contraction in output was marginal, with companies widely linking lower production to weaker inflows of new work.

At the same time, cost pressures intensified.

Manufacturers reported another marked rise in operating expenses during August, largely because of higher fuel and imported goods prices. Input-cost inflation accelerated for a second consecutive month to its fastest rate since January.

Companies increasingly passed those higher costs on to customers. Output price inflation accelerated to a seven-month high, with the pace of increase described as substantial and above the survey’s long-run average.

The combination of contracting demand and accelerating prices points to a difficult environment for Russian manufacturers, which are facing weaker customer spending while remaining exposed to higher energy, import and logistics costs.

Employment continued to fall midway through the third quarter.

Manufacturers reported both redundancies and decisions not to replace workers who left voluntarily as companies adjusted staffing levels to weaker order books. Employment declined at a modest pace, although the fall was the fastest for three months.

Backlogs of work also continued to decline, extending a trend that has run since February 2025. The rate of depletion slowed from July but remained among the fastest recorded for more than five years.

Companies said they had sufficient spare capacity to deal with incoming orders, another indication that demand rather than production constraints was weighing on the sector.

Manufacturers also cut purchasing activity in August following three consecutive months of expansion. Companies cited reduced demand for raw materials and components, while some said they were drawing down existing inventories to support production.

Stocks of both purchased inputs and finished goods fell at faster rates during the month.

Supply-chain conditions also worsened.

Manufacturers reported longer delivery times as logistics problems and fuel shortages disrupted supplies. The deterioration in supplier performance was the sharpest since December 2024.

The survey nevertheless showed some improvement in expectations.

Business confidence among Russian manufacturers strengthened in August after falling to a recent low in July. Although optimism remained below its historical average, companies said they expected demand conditions to improve over the coming year and pointed to planned investment in advertising.

The improvement in sentiment contrasted with the immediate picture facing the sector: falling orders, weaker production, declining employment and inventories, and rising costs.

With the headline PMI back below 50, August’s figures suggest the brief improvement recorded earlier in the summer has yet to develop into a sustained manufacturing recovery.