Russian service sector shrinks again in May on weak demand

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© Reuters. FILE PHOTO: National flag flies over the Russian Central Bank headquarters in Moscow, Russia May 27, 2022. REUTERS

(Reuters) – Russia’s service sector shrank for the third consecutive month in May, under pressure from the impact of Western sanctions and weak demand at home, the S&P Global (NYSE:) purchasing managers index (PMI) showed on Friday.

The index’s headline figure of business activity climbed to 48.5 in May from 44.5 in April, though remained below the 50 mark that separates expansion from contraction.

“The fall in output reflected weak domestic and foreign demand conditions, with total inflows of new work and new export business decreasing sharply,” S&P Global said in a statement.

Russia’s economy is under heavy pressure following the imposition of Western sanctions in response to Moscow’s move to send tens of thousands of troops into Ukraine on Feb. 24. Some economists are predicting the country could suffer its worst recession in more than two decades in 2022.

Service companies cited reduced purchasing power among Russian consumers as one of the main drivers of the fall in business during the month.

With new orders drying up, the level of outstanding business fell at its fastest pace since the start of the coronavirus pandemic in April 2020 and companies continued to lay off staff.

Despite the dip in activity, fading inflationary pressures and hopes for an improvement in conditions over the coming year pushed business confidence in the sector to its highest level in six months, S&P Global said.

A sister survey showed earlier this week that Russian manufacturing activity expanded in May after three months of contraction and price pressures eased notably, but sanctions continued to dent client demand.

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