Russia’s Manufacturing Sector Contraction

(Reuters) – Activity in Russia’s manufacturing sector contracted for the first time in over two years in September, driven by declines in output levels, new orders, and employment.

The S&P Global Purchasing Managers’ Index (PMI) for Russian manufacturing fell to 49.5 from 52.1 in August, moving below the 50 level that separates expansion from contraction for the first time since April 2022.

According to S&P Global, “The decrease in production was linked to subdued demand conditions and supplier delivery delays which led to input shortages and hampered output.”

Russia’s significant spending on military equipment since invading Ukraine in February 2022 has sustained a manufacturing sector that might have struggled otherwise, as some countries shunned Moscow.

Gradually, Russian manufacturers have found new export markets, with new export order growth accelerating in September, reportedly due to stronger demand from Central Asia, according to S&P Global.

However, supply chain problems and labor shortages have become more prominent, with some firms noting a lack of skilled candidates for job vacancies. S&P Global stated, “Supply chain issues including delays to rail transportation and international logistics led to a sharp deterioration in vendor performance in September.”

Expectations for future output remained elevated, though they eased to their lowest level since February 2023, with optimism stemming from hopes for stronger demand and planned investments in new products and production facility expansions.