Russia’s service sector began 2026 with its fastest pace of expansion in 12 months, fuelled by rising demand and new orders, though a sharp acceleration in inflationary pressures linked to a VAT increase clouded the outlook, according to S&P Global. (chart)

The seasonally adjusted S&P Global Russia Services PMI Business Activity Index rose to 53.1 in January from 52.3 in December, marking a solid upturn in activity and the fourth consecutive month of growth. “The Russian service sector signalled a stronger performance at the start of 2026 as output and new order growth gained momentum,” S&P Global reported on February 4.

Russia’s manufacturing sector remained underwater in January, but the declines were at the slowest pace in eight months, according to S&P Global.

The seasonally adjusted S&P Global Russia Manufacturing PMI rose to 49.4 in January from 48.1 in December, just below the 50 no-change benchmark, signalling a marginal decline in operating conditions, says S&P Global. While still below the no-change threshold, the reading marked the mildest deterioration since the downturn began eight months ago.

The broader private sector also returned to expansion, with the S&P Global Russia Composite PMI Output Index climbing to 52.1 in January from 50.0 the month before. While manufacturing continued to contract, the pace of decline slowed, and growth in services drove the overall rebound in output and new sales.

Despite falling headcounts in manufacturing, renewed job creation in services resulted in a stabilisation of overall employment. “A renewed rise in services headcounts led to a broad stabilisation in private sector staffing numbers in January,” S&P Global said.

Firms surveyed attributed increased business activity to improved customer demand and effective advertising. “Panellists attributed higher levels of new orders to successful advertising campaigns and an improvement in client demand,” the report said. January saw the fastest rise in new business in a year, in line with the long-run series average.

Employment in the services sector also increased, with stronger demand conditions supporting hiring and business confidence. However, the report highlighted that “the recent rise in value added tax (VAT) caused rates of input cost and output charge inflation to soar in January, with firms seeking to pass on hikes in operating expenses to their clients.”

Input prices rose at the sharpest pace in two years, driven by higher supplier and transportation costs following the VAT hike from 20% to 22%. “Operating expenses rose at the sharpest pace in two years as supplier prices ticked up in response,” the report said. As a result, service providers also raised output charges markedly, with charge inflation accelerating beyond the historical trend.

The inflationary spike comes amid broader price pressures in the Russian economy. “The pace of cost inflation was steeper than the series trend,” S&P Global noted, adding that price rises were recorded across both the service and manufacturing sectors.

Business confidence improved across both sectors, although sentiment in the services sector had weakened in December to its second-lowest level since early 2023.

Data for the report were collected between 12 and 28 January 2026.