Russian Manufacturing PMI Plummets to Lowest Level Since Early 2022 Amid Economic Slowdown

According to the latest report from S&P Global, Russia’s manufacturing sector experienced its most significant decline in nearly three years last month, with weakening domestic and export demand leading to drops in output and new orders.

The Purchasing Managers’ Index (PMI) for Russian manufacturing decreased to 48.2 in March, down from 50.2 in February—marking its second consecutive month of underperformance following a relatively robust figure of 53.1 in January.

Since August 2024, the Russian Central Bank has been forecasting a significant economic slowdown, as it implemented non-monetary policy measures to address an overheated economy and tackle persistent inflation, which stood at 9.9% in January.

The PMI plunge indicates a renewed decline in operating conditions, with the decrease registered as the most pronounced since April 2022 and the first contraction since September of the previous year.

Despite this, analysts at Renaissance Capital noted in a February report that inflation likely peaked in January and may begin to decrease. Nevertheless, the currently high interest rates of 21% are not expected to be reduced in the near future, the analysts added.

The weak performance in the manufacturing sector is also reflected in the services sector and the overall PMI figures. In February 2025, growth in Russia’s services sector slowed significantly, with the S&P Global Russia Services PMI falling to 50.5, down from 54.6 in January.

Concurrently, the composite PMI, which aggregates both manufacturing and service data, dropped to 50.4 in February from a 12-month high of 54.7 in January. New service and composite PMI figures are expected to be released later this week and are anticipated to show similar declines below the 50 threshold.

The contraction was primarily driven by a substantial reduction in production, ending a four-month period of growth. S&P Global highlighted that the output drop was the steepest since July 2022.

This downturn was linked to declining demand, with new order inflows decreasing for the first time since October 2023. A decline in export sales further exacerbated the overall drop in new business.

Manufacturers reacted by reducing input purchases and relying on existing inventories.

“Faltering client demand led to a decreased rate of input purchasing in March,” the report stated, noting that “the drop in purchasing activity was the sharpest since August 2022.”

Companies also faced challenges in restocking supplies, and while supply chain pressures eased somewhat, delays related to logistics and rail transport continued to impact delivery times.

As Rencap had forecasted, inflationary pressures eased during the month, aided by favorable exchange rate changes that kept the cost of imported goods in check.

“Input costs rose at a historically low rate,” with the latest increase being the weakest since December 2022. Meanwhile, output charges continued to increase, yet the rate of selling price inflation was the slowest in two years and fell below the historical average.

While the Central Bank aims to orchestrate a soft economic landing, some analysts project a wave of bankruptcies later this year for Russia, while others argue that the economy is more resilient than it seems.

The PMI indices will serve as a valuable indicator of how effectively the Central Bank and the Finance Ministry are managing the enforced economic slowdown to combat inflation.

A promising sign is that despite the decrease in demand, business confidence has improved, fueled by expectations of stronger future output backed by investment in product development and marketing.

“The positive sentiment level was significant and reached its highest point in four months,” the survey indicated. This optimistic outlook led to modest hiring, with employment increasing at the second-fastest rate since August 2024, although job creation remained marginal.

Outstanding work backlogs decreased at a faster rate, reflecting a combination of increased staffing and dwindling order volumes. The reduction in outstanding business was the joint steepest since February 2024.

Overall, the data suggest mounting pressures on Russia’s industrial economy as subdued demand and logistical challenges affect performance, despite some optimism and easing cost pressures.

This article was initially published in bne IntelliNews.