- Category
- Latest news
War Economy Takes Toll: Russia’s Factories Report Deepest Slump in Domestic Market Since 2022
- Authors
![Photo of Vlad Litnarovych]( "Photo of Vlad Litnarovych")
Russia’s manufacturing sector contracted in July at the fastest rate since the early days of its full-scale war against Ukraine, according to a business survey published by Reuters on August 1, citing S&P Global.
The S&P Global Purchasing Managers’ Index (PMI) for Russian manufacturing fell to 47.0 in July from 47.5 in June, moving further below the 50-point threshold that signals contraction. This marks the sharpest monthly decline since March 2022.
S&P Global described the results as indicating a “solid decline in the health of the manufacturing sector,” citing weakening domestic demand and mounting financial strain on Russian companies.
“The reduction in production levels was commonly linked to lower new order inflows and weak demand conditions amid challenges securing finance and receiving payments,” S&P Global said in its report.
This is the second significant drop in as many months and underscores mounting headwinds for an industrial base that had previously been propped up by massive state spending on weapons and military equipment following Russia’s 2022 invasion of Ukraine.
While military orders initially buoyed output, official data shows industrial growth has slowed in the past year. Soaring borrowing costs have also taken a toll: the Russian central bank only recently cut its key interest rate by 200 basis points to 18%, after holding it at 20-year highs for months.
New domestic orders declined for the fourth time in five months, with the sharpest drop since March 2022. However, new export orders edged up slightly for the first time in five months, reflecting stable demand in some foreign markets.
Business sentiment remained positive but fell to its lowest level since August 2022.
“Although companies hope that investment in new products and facilities will support output growth, economic uncertainty and reduced purchasing power at customers dampened positive sentiment,” S&P Global added.
Earlier, reports emerged that Russia’s banking sector was facing mounting pressure, with the true scale of the problem potentially far more serious than the Kremlin publicly admits.
