Russia’s June Industrial Output collapses at worst rate since the invasion

Russia’s manufacturing sector shrank sharply in June, with output, new orders, and exports all declining at a rate not seen since the initial shock of the full-scale invasion of Ukraine. The latest S&P Global Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.5 from 50.2 in May, signaling a steep contraction in industrial activity and underscoring growing strain in the Russian economy.

The reading marks the lowest level in over three years and the most significant downturn since March 2022, when Western sanctions first hit the Russian economy in response to its aggression in Ukraine. Any PMI figure below 50 reflects a contraction, and June’s fall highlights a notable deterioration in business conditions across Russia’s industrial base.

While headline data has shown resilience in some segments of the Russian economy—primarily those driven by state defense contracts and redirected trade to Asia—June’s figures expose vulnerabilities in civilian manufacturing. According to S&P Global, firms reported shrinking demand from both domestic and foreign clients. Export orders declined at the fastest rate since November 2022, as Russian manufacturers struggled with a weaker ruble, higher transportation costs, and limited access to Western markets.

The domestic picture fared no better. Respondents pointed to waning purchasing power and falling investment appetite as key factors behind the drop in new orders. Some companies also noted that elevated interest rates—Russia’s central bank rate currently sits at 20%—were choking off business borrowing and curbing internal expansion plans.

Employment in the manufacturing sector also contracted in June, with job cuts recorded at the fastest pace in over a year. Companies reduced staff numbers in response to lower workloads, a trend that suggests deeper malaise than a temporary fluctuation. Backlogs of work were also depleted, indicating that existing demand is insufficient to maintain output levels.

Despite the worsening data, Russian firms remained cautiously optimistic about the future. Some respondents said they expect a recovery in the coming year, driven by new product launches or projected improvements in the operating environment. However, business confidence remains subdued—hovering near its lowest point since late 2022.

June’s PMI results suggest the Russian economy is becoming increasingly unbalanced. While defense-linked production continues to receive state support and generate output growth, the broader manufacturing sector is losing momentum. Services posted modest gains in May, but the industrial slump raises questions about the sustainability of overall economic performance in the second half of the year.

Structural issues continue to weigh on the outlook. Sanctions have not only severed traditional export markets but also restricted access to critical components, spare parts, and technology. At the same time, Moscow’s pivot to Asian markets—though politically strategic—has not compensated economically, given lower margins and higher logistical costs.

With industrial output shrinking and investment constrained, Russia may soon be forced to revise its growth projections. Absent meaningful structural change or a softening of sanctions pressure, June’s downturn may be a signal of deeper stagnation ahead.