Russian service sector firms saw their first expansion in business activity for four months in June, with output and new orders increasing, but workforce numbers were falling, albeit at a slower pace.

Companies registered a return to business growth with a Purchasing Manager’s Index (PMI) score of 51.7, up from 48.7 in May, with anything above 50 indicating expansion of business activity.

The S&P Global Russia Services PMI said output rose marginally, as new orders increased for the first time in nine months and at the fastest pace for a year.

Client demand was supported by domestic customers, with new export orders continuing to contract, the report said.

At the same time, output expectations regarding the year-ahead outlook strengthened to their highest since February. 

While companies continued to reduced their workforce numbers, it was at a slower pace as there was a further fall in backlogs of work. Input costs increased as hikes in labour and imported material prices pushed up business expenses.

The rate of growth was only marginal overall and below the series average, but the upturn was reportedly linked to greater client demand and a renewed rise in new business.

Survey panellists said they saw the first increase in new orders since September 2021, with firms often saying upturn in demand was from new and existing domestic customers.

Meanwhile, firms registered that the substantial rise in input costs continued in June, linked to greater imported input prices, amid unfavourable exchange rate movements.

Inflation was still the steepest on record but eased to the softest rate since February.

Hopes of further rises in new business and client demand underpinned positive sentiment, according to panellists.

(Reporting by Imogen Lillywhite; editing by Seban Scaria)