Russian service sector activity returns to growth in July, PMI shows

(Reuters) - Activity across Russia's services sector returned to growth in July, which firms attributed to stronger demand, creating more new orders and a faster rate of job creation, a business survey showed on Monday.

The S&P Global Purchasing Managers' Index for Russian services rose to 51.1 in July, moving back above the 50 mark that separates growth from expansion, after contracting at its fastest pace in 18 months in June with a reading of 47.6.

The sector had enjoyed 15 consecutive months of expansion prior to contractions in May and June.

Activity in Russia's manufacturing sector has largely been built on domestic demand since Western capital and companies left the country in response to its February 2022 invasion of Ukraine.

But export orders in the services sector have remained resilient and rebounded sharply in July from a contraction.

Russian firms have been grappling with a tight labour market for about two years and companies noted a historically elevated rise in cost burdens in July, S&P Global said.

"Anecdotal evidence linked the uptick in operating expenses to hikes in supplier costs and wage bills."

Firms remained confident that output would rise over the coming year.

"Positive sentiment was driven by hopes of stronger demand conditions and efforts to attract new customers," S&P Global said, though the degree of optimism was its lowest in a year.

A sister survey published last week showed that activity in Russia's manufacturing sector grew at its slowest pace in six months in July, hampered by a renewed decline in export orders linked to weak demand conditions in key export markets.

(Reporting by Alexander Marrow; Editing by Susan Fenton)